With the market continuing to weigh summer heat against weakness in liquefied natural gas (LNG) export demand, natural gas futures were trading close to even early Wednesday. The July Nymex contract was up 0.5 cents to $1.642/MMBtu at around 8:45 a.m. ET.
Front month natural gas prices remain “trapped” between “conflicting forces” as the potential for further declines in LNG feed gas demand has countered potential support from higher power burns heading into the heart of summer, according to analysts at EBW Analytics Group.
“The potential for LNG feed gas flows to drop further early next month has taken a heavy toll on the near-month contracts, which fell again yesterday,” the EBW analysts said. “The winter-month contracts are also under assault due to an exaggerated assessment of the impact of higher oil prices on production of associated gas.”
On the other hand, EBW estimates that power sector gas burn could rise as much as 7.0 Bcf/d nationally compared to current levels by the peak of the summer season; this prospective cooling demand has so far helped to hold support for the July contract near $1.60.
“The assault on support at $1.60 could continue over the next two trading sessions, driven by analyst predictions that EIA will report a blockbuster injection tomorrow — well above 100 Bcf,” the analysts said. “If this verifies, support at $1.60 might break. If not, the July contract could rebound modestly from recent lows.”
Looking at the latest forecasts, Bespoke Weather Services noted slightly cooler trends for next week but said both the American and European models “show a more favorable pattern for anomalous heat” starting after around July 5.
The heat doesn’t appear likely to impact the southern United States, but the pattern points to a higher chance of above-normal temperatures from the Midwest to the East, according to the forecaster.
Total gas-weighted degree days “remain easily above normal over the next two to three weeks at least, similar to what we have observed all month long, with a few days of hotter weather, some variability/near normal, then a return of anomalous heat,” Bespoke said.
Despite the cooler look for next week, Bespoke said it views the weather as slightly bullish versus normal overall.
“The winter-dated contracts have been under pressure every morning, however, and that is again the case today,” Bespoke said. “That weakness could again bleed into the front, regardless of the data, but we still feel there is no reason why we should breach the $1.60 support level in the July contract.”
August crude oil futures were down 72 cents to $39.65/bbl at around 8:45 a.m. ET, while July RBOB gasoline was off about 2.5 cents to $1.2749/gal.
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