At A Glance:

  • EIA prints 47 Bcf withdrawal
  • April weather to weaken demand
  • Freeport LNG revival continues

Natural gas futures edged up early Wednesday as traders mulled an increasingly hot June forecast against a projected hefty storage build. Though briefly moving into the red, the July Nymex gas futures contract settled Wednesday at $3.129, up a mere one-tenth of a cent on the day. August climbed four-tenths of a cent to $3.144.

Spot gas prices were mixed as cooler weather hit the East Coast, while areas along the Gulf Coast continued to bake. NGI’s Spot Gas National Avg. slipped 7.5 cents to $2.870.

With liquefied natural gas (LNG) feed gas demand still rather “uninspiring” because of ongoing maintenance, the current heat wave in Texas and along the Gulf Coast was the primary driver of Wednesday’s gains at the front of the Nymex futures curve, according to NatGasWeather.

The firm said the European Centre (EC) and the American Global Forecast System (GFS) models each added a few cooling degree days overnight. Strong heat was seen continuing through the weekend, but then easing to more seasonal next week as hot high pressure was forecast to shift over the western half of the country. In the eastern third of the country, more comfortable temperatures were expected, along with showers.

“This cooler-than-normal pattern over the eastern U.S.,” forecast to run from Tuesday through June 21, “is what’s preventing the pattern from being considered solidly bullish,” said NatGasWeather.

The forecaster also noted that while LNG feed gas remained well off record highs at around 8.8 Bcf, the drop was partially countered by strong exports to Mexico that have been running near 7.0 Bcf/d.

The forecaster expects the weather pattern for the June 22-27 period to be of increasing importance in the coming days. Both the GFS and EC data had teased at stronger demand, with upper high pressure over the West shifting over the southern United States. However, the midday GFS run “was a little slower in its development to lose a little demand for June 21-23.”

Improving Deficits

Outside of weather, Thursday’s government inventory report may spark some more meaningful price direction one way or the other.

Market observers are expecting the storage build to be hefty, with estimates pointing to an injection in the 90s to low 100s Bcf for the next Energy Information Administration (EIA) report.

A Bloomberg survey of nine analysts produced an injection range between 91 Bcf and 104 Bcf, with a median forecast of 100 Bcf. A Wall Street Journal poll of 13 analysts had a wider range up to 111 Bcf, with an average build of 100 Bcf. Reuters polled 19 analysts, whose estimates ranged from a build of 90 Bcf to 110 Bcf, with a median injection of 97 Bcf.

NGI modeled a 100 Bcf build.

This would compare with last year’s 95 Bcf injection for the similar period and the 92 Bcf five-year average, according to EIA.

NatGasWeather said while Thursday’s storage report may generate a triple-digit injection, market participants are likely more interested in the following two builds. These could reflect how the current heat wave extending across the central and southern regions impacts demand/build sizes.

“We expect deficits will improve slightly off this Thursday’s EIA report, but then increase modestly after next week’s EIA report accounts for current hot conditions over the central and southern U.S.,” the forecaster said.

Following Thursday’s report, the next two weeks of storage data are likely to be closer to normal until more impressive heat builds over the eastern half of the country, according to NatGasWeather. “Essentially, we don’t expect big changes in supply deficits versus the five-year average until late June, but then with the potential to increase if hotter patterns come to fruition by the start of July.”

The EIA’s weekly inventory storage report is scheduled to be released at 10:30 a.m. ET.

From here, there could be more room to grow for gas prices. Goldman Sachs Commodities Research analysts said more disciplined U.S. oil production growth has crimped associated natural gas, which, combined with “normalizing” LNG exports, should tighten the U.S. supply balance into the fall. 

“This fundamental view is now to a large extent reflected in forward U.S. gas prices,” said the analyst team led by Samantha Dart.

The Nymex forward gas price for the second half of 2021 is $3.18, slightly under Goldman’s forecast of $3.25.

“We are not calling the top for U.S. gas prices at current levels,” but analysts expect “more symmetric price risks from here.”

Meanwhile, Mobius Risk Group said as inflationary concerns become more frequent and far reaching across the commodity landscape, the North American natural gas market could be nearing an interesting period.

The Houston-based firm noted that natural gas is a key input for producing fertilizer, which will be needed in increasing quantities based on forward corn/soy markets. In addition, it said unless the price of Brent crude collapses, a Henry Hub-linked methane molecule would remain one of the cheapest sources of LNG in the world. Finally, “access to capital will always determine how prolonged an elevated pricing environment can last before a supply side response takes shape.”

Mixed Bag

Spot gas prices started to retreat in parts of the country on Wednesday even as hot weather pounded the southern and central United States. Cooler weather on the East Coast, thanks to thunderstorms moving into the region, led to sharp losses there.

One of the largest declines occurred at Transco Zone 6 NY, where cash prices plunged 68.0 cents to $2.295 for Thursday’s gas day. In Appalachia, Texas Eastern M-3, Delivery was down 25.5 cents to $2.230.

The rest of the country saw much smaller shifts day/day. In Texas, where temperatures continued to reach the 90s, spot gas prices slipped no more than a dime at the majority of locations. Houston Ship Channel dipped 3.0 cents to $3.005, and El Paso Permian lost a penny to hit $2.760.

Meanwhile, El Paso Natural Gas Pipeline started a one-day maintenance event as part of the El Paso 3D inspection maintenance at the Hueco Station. Wood Mackenzie noted that the maintenance was cutting flows through the CORN LPW meter in Hudspeth County, TX, to 1.0 Bcf/d Wednesday from 1.1 Bcf/d Tuesday.

In the Midcontinent, Enable East was down 4.5 cents day/day to $2.850, and in South Louisiana, Transco Zone 3 climbed 4.5 cents to $3.140.

A handful of Rockies locations picked up more than a dime, while most California markets shifted only slightly.