Natural gas futures continued to slide in early trading Friday as the market mulled evidence of a looser supply/demand balance in the latest government inventory data. Coming off a 12.6-cent sell-off in the previous session, the September Nymex contract was down another 3.9 cents to $3.894/MMBtu at around 8:50 a.m. ET.
The Energy Information Administration (EIA) on Thursday reported a 49 Bcf injection into U.S. natural gas stocks for the week ending Aug. 6, in line with market expectations. The build compared with a 55 Bcf year-ago injection and a five-year average 42 Bcf build.
Noting the much leaner 13 Bcf injection reported in the prior week, Tudor, Pickering, Holt & Co. (TPH) analysts attributed the “whipsaw week/week” to lower power generation, which was down an estimated 4 Bcf/d to 38 Bcf/d for the most recent EIA report period.
“Warmer-than-average temperatures this week have kept the whipsaw a’ whipsawing, however, as power generation demand has averaged around 43 Bcf/d the past three days — roughly 3.5 Bcf/d above the five-year average,” the TPH analysts said.
However, renewables generation has been setting seasonal records this week driven by wind and solar, which has dropped the percentage of electricity derived from thermal generation compared to recent highs observed in late July, according to the firm.
Higher wind generation this week has been a key factor driving loosening in the supply/demand balance and in turn applying downward pressure on natural gas prices, Bespoke Weather Services said early Friday.
A drop in liquefied natural gas (LNG) feed gas demand contributed earlier in the week, but “we have returned to around 11 Bcf/d this morning,” Bespoke said. “Production continues to sit flat since February. With that in mind, and the fact that wind is now headed back lower, we do not see things as bearish here at all, though momentum could lead us to at least test support in the low $3.80s.”
In terms of technicals, bears still have further to go to prove the recent slide is not just “another minor bull market correction,” ICAP Technical Analysis analyst Brian LaRose told clients ahead of Friday’s session.
“In this situation we would need a close below both $3.902-3.882 and $3.715-3.681 to have a case for a more significant top,” LaRose said. “Forced to treat any sideways to lower price action as corrective otherwise.”
As for the latest forecast outlook, Bespoke said its updated 15-day projections trended slightly hotter overall. This is attributable to warmer trends over the next few days on weaker cooling expected for the eastern half of the nation, according to the firm.
“The big picture remains the same, in that we are now moving past what will be the peak heat of summer, in absolute terms, but remain in a pattern that is biased to the above side of normal in terms of temperatures/demand,” Bespoke said.
September crude oil futures were down 26 cents to $68.83/bbl at around 8:50 a.m. ET.
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