Natural gas futures finally found their footing in the final hour of trading Thursday after an unusual government inventory report that left traders scratching their heads. Lower export levels and forecasts pointing to less heat next week also weighed on prices, but outlooks for strong demand next month on both fronts provided a late boost.
At A Glance:
- The prompt month tops $4.00 again
- Exports, cooling demand strong
- Cash prices advance across central U.S.
The July Nymex contract settled at $3.253/MMBtu, up two-tenths of a cent day/day. It traded in the red most of the day but rebounded late to claw back into the green. August rose four-tenths of a cent to $3.275.
Amid intense heat in the West, NGI’s Spot Gas National Avg. on Thursday climbed 1.0 cent to $3.135.
The U.S. Energy Information Administration (EIA) on Thursday reported an injection of 16 Bcf into natural gas storage for the week ended June 11. The result was skewed by a one-time adjustment in the Pacific that drove down working gas stocks in that region.
EIA announced an implied build of 67 Bcf for the week, a few ticks below median estimates, but the reclassification created a huge headline miss that drove some traders to the sidelines.
Pacific Gas and Electric Co. (PG&E) said it reclassified 51 Bcf from working gas to cushion gas, effectively removing that amount from the available inventory. PG&E initially reported that the shift, because of an accounting methodology change, would take effect with next week’s storage report. However, EIA took it into account immediately.
Marex North America LLC’s Steve Blair, a senior account executive, told NGI that the magnitude and accelerated timing of the adjustment likely caused some traders to pause to digest the change. It marked the largest reclassification in any one region to date.
“It was more than a bit funky,” Blair said. “I’ve been dealing in natural gas since the ’90s, and I’ve never seen anything this large. I think it just caused confusion and people temporarily hit the brakes.”
Prior to the report, major surveys landed at a median injection in the low 70s. NGI’s model predicted a 74 Bcf increase. Last year EIA recorded an 86 Bcf build for the similar week, and the five-year average is an injection of 87 Bcf.
Temperatures during the EIA report week were hotter than normal over most of the Lower 48, NatGasWeather said. The firm said the relatively light build on an implied basis reflected robust cooling demand during the covered week.
The injection lifted inventories to 2,427 Bcf. That compared with the year-earlier level of 2,880 Bcf and the five-year average of 2,553 Bcf. Every region posted an increase, except the Pacific, where stocks dropped by 40 Bcf because of the PG&E reclassification. The change equaled the implied flow of 11 Bcf minus the 51 Bcf adjustment.
Looking ahead to next week, early estimates call for a modest build that reflects the intense heat cooking the western United States in June.
Bespoke Weather Services estimated a 72 Bcf injection for the week ended June 18; the five-year average is 83 Bcf. “We remain on pace for a high-end hot June overall, ranking in the top five hottest in the historical record,” the firm said.
Forecasters, however, said cooling needs could ease some next week – after two weeks of elevated demand.
NatGasWeather said data Thursday maintained cooler trends, showing weather systems bringing comfortable highs in the 60s to 80s to the northern, central and east-central parts of the Lower 48. “Weather patterns for next week” lack heat following “cooler trends the past several days, although the pattern after remains just hot enough.”
What’s more, liquefied natural gas (LNG) levels, which have been curbed in June because of maintenance work at export facilities, remained relatively light on Thursday. NGI data showed LNG feed gas volumes holding steady with the prior day at 9.7 Bcf – below the 11 Bcf at which they hovered most of the spring.
That noted, analysts expect LNG exports to climb back above 11 Bcf after maintenance projects culminate in July because demand from both Asia and Europe, where supplies are short, is running high.
Mexican demand for U.S. gas is also robust. Though subject to revisions, Criterion Research said initial estimates showed pipeline exports to Mexico topped 7.5 Bcf on Wednesday. If that holds, it would set a new record level.
Blair said the combination of export strength and almost inevitable heat in July and August will likely prove catalysts for renewed market vigor. He also noted that production this week has hovered around 90 Bcf, below recent highs above 92 Bcf.
“I think what we saw today was clearly just a temporary move down,” Blair said Thursday of the post-storage report decline. “It was a brief pause in what appears to be an upward moving market. I wouldn’t be surprised to see prices back up near recent highs in the next couple days.”
Spot gas prices on Thursday advanced as cooling demand in the West propped up the national average.
NatGasWeather said “dangerous heat” scorched California, the Southwest and Mountain West on Thursday and was expected to do so again on Friday. High temperatures ranged from the mid-90s to 120.
Amid the heat, California’s grid operator called for afternoon and evening energy conservation on Thursday. The California Independent System Operator cited surges in electricity demand to cool homes and businesses.
It remained hot over Texas and most of the South, as well, with highs Thursday in the mid-90s. Citing unrelenting heat and forced power outages, the Electric Reliability Council of Texas asked Texans this week to conserve as much energy as possible through Friday.
Prices on Thursday declined across most of Texas following ERCOT’s plea.
Prices moved in a narrow range of gains and losses throughout the rest of the nation’s midsection, with Chicago Citygate up just a half-cent to $3.115.
“Also of interest is a tropical system in the southern Gulf of Mexico that will gradually strengthen” by Friday and potentially make landfall over East Texas and Louisiana over the weekend, NatGasWeather said.
However, “some of the overnight data suggested the track could trend westward toward the central Texas coast, thereby requiring close monitoring ahead of the weekend break,” the firm said. “To our view, this system will likely play out more bearish than bullish due to demand destruction through showers and cooling, as well as potential disruptions to LNG feed gas and cargo delays.”
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