Propelled by strong summer heat and associated cooling demand, natural gas futures showed no signs of losing momentum early Tuesday. Even after several straight sessions of gains, bulls remained in control early, sending the August Nymex contract 11.9 cents higher to $3.712/MMBtu at around 8:45 a.m. ET.
The August contract surged 7.3 cents higher in Monday’s session, a rally that analysts at EBW Analytics Group attributed to near-term heat and corresponding strength in the physical market.
“With forecasts calling for 13.39 day-ahead” cooling degree days (CDD), “gas prices at Henry Hub rose 15.5 cents to average $3.565, with high prices at most other hubs nationally,” the EBW analysts said. “The cash market remains extremely tight this morning, sending futures even higher. Later this week, though, CDD are forecast to fall to as low as 8.49, reducing weather-driven demand significantly.”
This comes as commercial and industrial demand is also expected to decline because of the July Fourth holiday, according to the firm.
“The resulting steep decline in total national demand could trigger a brief pull-back in both cash and futures,” the EBW analysts said. “The August contract should be able to hold on to most of its gains, though, due to the expected return of heat later in the month” and an ongoing ramp-up in liquefied natural gas (LNG) demand.
As for the overnight forecast, NatGasWeather noted a loss in total CDD but said the forecast remains bullish overall amid hot conditions projected over the next few days and again in the eight- to 15-day time frame.
“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,” NatGasWeather said. “What helps make the pattern bullish is a rather hot pattern for the 11- to 15-day period is expected to hold through mid-July to keep national demand strong.”
The firm said it expects the inventory deficit to the five-year average to increase to close to 200 Bcf by mid-July.
Looking ahead to Thursday’s Energy Information Administration (EIA) storage report, Energy Aspects issued a preliminary estimate for a 66 Bcf build for the week ended June 25. The firm modeled a 0.9 Bcf/d week/week decline in power burns on stronger wind generation.
“Higher production by 0.7 Bcf/d week/week, on lesser Appalachian maintenance and growing Permian Basin output, will be counteracted by 0.7 Bcf/d more LNG demand week/week on the end of maintenance at Cameron and Sabine Pass,” Energy Aspects said.
NGI’s model predicted a 67 Bcf injection for this week’s report. Last year, EIA recorded a 73 Bcf build for the similar week, and the five-year average injection is 65 Bcf.
August crude oil futures were up 32 cents to $73.23/bbl at around 8:45 a.m. ET.
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