August natural gas prices started to show signs of slowing down Tuesday. But as oppressive heat led to more shattered records and rolling blackouts in the Pacific Northwest, the new prompt month edged up another 3.7 cents to $3.630 in its debut at the front of the Nymex futures. September climbed 3.4 cents to $3.606.


At A Glance:

  • Heating demand lingers
  • Production levels hold steady
  • Freeport recovery proves uneven

Natural gas cash prices also continued to swell amid the intense heat and high humidity. Next-day gas surged past $7.00 in California and to $12.00 in the Northeast, helping to lift NGI’s Spot Gas National Avg. 30.5 cents to $4.080.

In one of the more volatile nonwinter trading sessions in years, the August futures contract soared early to an intraday high above $3.80-, more than 20 cents above Monday’s settle. But it sold off almost as quickly.

“There is definitely nothing in either weather or fundamentals data that can explain such crazy price action, as it had the feel of a couple of larger players being forced to stop out, leading to the massive spike higher,” said Bespoke Weather Services. With Tuesday being so chaotic, “we feel being neutral is prudent.”

At the forefront of the early rally is the intense heat baking much of the United States. The hot, dry summer playing out in the Pacific Northwest has resulted in “temperatures that would make a Texan blush,” according to The Schork Group.

More than three-quarters of the West is in “severe” drought, and “exceptional” dry conditions are in more than a quarter of the region, the firm noted. That “spells trouble” for California, Oregon and Washington, where 42% of the total U.S. generation comes from hydroelectric power.

There appears to be little reprieve from the sweltering heat for at least another several days. Although some coastal areas may start to cool off a bit, AccuWeather said the unusually high temperatures would likely persist east of the Cascades and throughout Western Canada into the early days of July.

“While the discussion will shift away from record-setting temperatures in places such as Seattle and Portland later in the week, unusual heat will still remain in place for the Pacific Northwest,” AccuWeather meteorologist Mary Gilbert said.

High temperatures can still soar close to 20 degrees above normal each day for many locations from the middle of the week onward, according to the forecaster. Warm overnight low temperatures in the 70s are forecast as well.

Avista Utilities on Monday joined the list of Pacific Northwest utilities that experienced unplanned power outages because of the heat. The utility planned to implement “targeted, protective, outages” for one-hour increments during a seven hour span on Tuesday afternoon in order to better manage the grid. Some customers were advised that they may experience more than one outage with no less than one hour in between outages.

“While we plan for the summer weather, the electric system experienced a new peak demand, and the strain of the high temperatures impacted the system in a way that required us to proactively turn off power for some customers. This happened faster than anticipated,” Avista CEO Dennis Vermillion said. “Moving forward, we’re committed to reducing the length of outages and supporting our customers during this time with proactive information to manage through the protective outages that are expected this week.”

A couple thousand customers of Oregon’s Portland General Electric and Washington’s Puget Sound Energy remained without power Tuesday afternoon.

Heat Chomping Big Apple

The East Coast also is in store for more hot weather for another day or so.

New York, Baltimore and Philadelphia are all projected to record three straight days of temperatures in the 90s before rain moves into the forecast later this week.

Even though late June and early July tend to bring hot and humid conditions, the current heat wave is forecast to produce temperatures ranging from 5-15 degrees above average, according to AccuWeather. During late June, average highs range from the middle 70s in northern Maine to the upper 80s in southeastern Virginia.

Con Edison Inc., which provides electric service to more than three million customers and gas service to more than one million New York area customers, was busy restoring power to customers affected by the heat and humidity.

The company had restored service to 14,000 customers who lost service since the heat wave began on Sunday. Crews were working to restore power to 1,900 more, and ConEd continued to urge conservation.

By the end of the week, widespread relief was seen for the region thanks to a southward dip in the jet stream and a cool front moving into the region. AccuWeather said the same system that has been producing showers and thunderstorms for days over the central United States is showing signs that it may break down and start to move eastward.

“Forward speed of both features is somewhat questionable, and at the very least, showers and thunderstorms may linger in the region through at least Friday, with the chance that the downpours linger much longer,” AccuWeather meteorologist Matt Benz said.

By Friday, highs are forecast to range from near 70 in the highest elevations of the central and northern Appalachians to the middle 80s near the Chesapeake Bay. Similar highs are projected on Saturday with perhaps a slight uptick in temperature by Sunday.

Scrambling To Cover Shorts

That’ll be good news for the Los Angeles Angels pitcher who had to leave the baseball game against the Bronx Bombers on Monday night. But it may not be such good news for natural gas bulls hoping to continue the streak of gains along the Nymex curve. Tuesday marked the sixth straight day in the green for futures.

StoneX Financial Inc.’s Tom Saal, senior vice president of Energy, said the rally may still have some legs, though. Once the market “popped past” $3.400, that brought in some short-covering by speculative traders.

“When they stop covering shorts, the market will settle down a little bit,” Saal told NGI. “Unless, of course, we get some more hot weather.”

EBW Analytics Group recently broke down the latest Commodity Futures Trading Commission data. It noted that speculator net-long positioning increased almost 4,000 contracts for the storage week ending June 22, the fourth consecutive weekly increase.

“Speculators activity has been generally increasing, with total long and short positions reaching 804,000 contracts — the highest level since July 2014,” EBW said.

Net longs have reached a four-and-a-half-month high but still remain 66,000 contracts shy of mid-February heights, according to the firm. Net longs also reached 359,000 contracts in October 2020.

“Further upside potential from speculators, therefore, remains a possible source of continued upward pressure for Nymex natural gas later this summer,” EBW said.

Meanwhile, though residents in the Pacific Northwest may beg to differ, Saal noted that the core of summer is still ahead. Until the market comes to terms with how this summer will stack up against previously hot seasons, the relative flatness in the futures curve through the winter months may persist.

“Once summer starts occurring everywhere and we see how it gets, the market could say, ‘we may have a problem this winter.’ But the focus is not there yet,” Saal said.

Saal said the gas market “has taken on a new dimension” given the rampant growth in exports. “We’re exporting lots of gas now, and we’re seeing that in the storage numbers. The injections are the lowest we’ve seen in a long time. The market better start getting comfortable with higher prices.”

Bespoke said the next couple of government storage inventory figures would surely not be as tight as last week’s 55 Bcf injection. However, balances need to loosen at least close to the five-year average in order to begin “feeling a little more comfortable with storage levels as we inch closer to the upcoming winter.”

From a technical perspective, Bespoke said the market is experiencing “strong overbought conditions,” meaning that a pullback would not be a surprise at all after such a strong move higher. The firm noted, however, that it does not weigh technical indicators all that strongly in most cases.

“Still, for now, being bullish at $3.60 and above feels risky, so we prefer holding neutral until we see more data at these price levels.”

Cash Cruises Higher

Next-day cash prices gained ground across every region of the Lower 48 on Tuesday, building on the 40-cent advance in spot prices a day earlier.

With temperatures soaring into the upper 90s in Boston and neighboring markets, Northeast prices surged and led Tuesday’s upward charge.

PNGTS spiked $6.190 day/day to average $11.920 and Tenn Zone 6 200L rose $2.170 to $6.970.

Meanwhile, with the record-setting temperatures in the Northwest and a combination of sweltering heat and drought in California and the Southwest, prices swelled again throughout the West. El Paso S. Mainline/N. Baja jumped 90.5 cents to $7.025, while SoCal Citygate gained 51.5 cents to $7.065 and SoCal Border Avg. advanced 19.5 cents to $5.540.

Much of the western United States is mired in a second year of a punishing drought, leaving extraordinarily low water levels at critical reservoirs. That is raising concerns about hydropower and adding to demand for natural gas.

NatGasWeather said demand will be “quite strong the next couple days, as the East remains hot with highs of upper 80s to mid-90s, along with record breaking heat over the West.”

The firm said demand would be relatively moderate in the nation’s midsection — where sporadic rains and thunderstorms pushed temperatures down from the 90s into the 70s and 80s — though upward pressure on spot prices remained firmly in place Tuesday. In the Midwest, Chicago Citygate gained 14.5 cents to $3.745 and Defiance rose 15.5 cents to $3.635.

“National demand will ease late in the week as the central U.S. weather system slowly tracks into the East, cooling highs into the 70s to 80s,” NatGasWeather said. “However, national demand is still expected to increase July 6-13 to strong levels as upper high pressure strengthens over the southern, central, and eastern U.S. with widespread highs of mid-80s to 100s.”