• Liquefied natural gas levels topped 11.6 Bcf
  • Production held steady around 90 Bcf
  • Cash declined, led lower by hubs in the West

Natural gas futures rebounded on Friday, as traders absorbed a favorable storage report, continued robust export activity and the specter of stronger cooling demand on the near-term horizon.

markets

The June Nymex contract gained 3.0 cents day/day and settled at $2.958/MMBtu. July rose 3.0 cents to $3.004.

NGI’s Spot Gas National Avg. shed 1.5 cents to $2.690, led lower by losses in Texas and in the West.

The prompt month had stumbled the two prior sessions amid profit taking. However, traders returned their focus on Friday to a strong fundamental undercurrent of steady production around 90 Bcf/d – still below pre-pandemic highs – and strong export demand.

Liquefied natural gas (LNG) levels topped 11.6 Bcf on Friday, according to NGI data. LNG feed gas volumes have hovered near or above the 11 Bcf threshold and within striking distance of record levels for several weeks.

Pipeline exports to Mexico also are solid, regularly approaching 7 Bcf/d, helping to bolster the demand side of the equation and support prices.

On Friday, futures got an added bump from weather forecasts that called for more warmth and the onset of steady cooling demand in the second half of May.

It is “enough so that we feel we get a more material boost” in cooling-degree days, “setting the stage for above-normal cooling demand to close out the month and start June,” Bespoke Weather Services Friday.

The markets on Thursday had shrugged off a modestly bullish U.S. Energy Information Administration (EIA) inventory report. Traders looked instead to the prospects of higher injections over the next couple weeks. Still, with forecasts now showing cooling demand around the corner, markets had an opportunity to embrace Thursday’s EIA assessment more favorably, analysts said.

EIA on Thursday recorded an injection of 60 Bcf into storage for the week ended April 30. The print came in below the mid-60s Bcf median expectation found in major polls. The build for the latest week lifted inventories to 1,958 Bcf, though the total was well below the year-earlier level of 2,303 Bcf and under the five-year average of 2,019 Bcf, according to EIA.

“Compared to gas-weighted degree days and normal seasonality,” the reported storage change “appears tight by 2.5 Bcf/d versus the prior five-year average,” said analyst Eric Fell of Wood Mackenzie.

“It’s starting to feel like Groundhog Day as gas continues to impress with another build well below seasonal norms,” analysts at Tudor, Pickering, Holt & Co. (TPH) said in a note to clients early Friday. “…With the lower-than-normal build, inventories sit at a 4% deficit to the five-year average and continue to be indicative of the strong macro environment.”

Optimism Builds

LNG continues to “run hot,” and with “European storage struggling to refill and increasing demand out of Asia, we continue to believe demand for feed gas will stay above 10 Bcf/d through the summer,” the TPH analysts said.

They said storage deficits versus the five-year average in both the EIA South Central and East regions could further lift prices, with the South Central 9% below historical norms and the East sitting at a 6% deficit.

“With two major markets continuing to distance themselves from the five-year average, we continue to remain optimistic on gas pricing heading into summer,” the TPH analysts said.

Optimism around energy demand broadly is mounting. U.S. oil inventories, for example,  dropped by 8.0 million bbl last week, the EIA reported. That brought stocks below the five-year average for the first time in 2021.

At 485.1 million bbl, domestic inventories were 2% below the five-year average. Imports declined, exports increased and production held steady. Stocks could fall further as coronavirus vaccine programs advance and summer travel picks up, driving demand for gasoline and jet fuels, analysts said.

[On March 1, 2021, NGI added three new points to its Forward Look data service, including an Agua Dulce point. Interested in adding affordable, robust natural gas forward curves to your business resources? Start a trial here.]

More than 40% of the adult U.S. population is now fully inoculated, according to government data, and inoculation efforts are gaining momentum on Europe and Asia. At the same time, however, the pandemic continues to foster economic uncertainty.

U.S. employers, for example, added 266,000 jobs in April, according to the Labor Department’s monthly employment report released Friday. That was far from the one million jobs that economists polled by Dow Jones had on average expected. The unemployment rate rose to 6.1% from 6%. Some employers are struggling to fill jobs, but others may have pulled back on hiring because of festering supply-chain challenges caused by the pandemic and still-raging virus outbreaks in parts of the world, including densely populated India.

In televised remarks, President Biden on Friday said the latest jobs report and global virus case counts show “the climb is steep, and we still have a long way to go” to fully recover from the pandemic.

Cash Falls

Spot gas prices failed to bounce back on Friday even as seasonally cool temperatures hung around much of the Midwest and the Northeast, with highs in the 50s from Chicago to Detroit to Boston, according to the National Weather Service (NWS).

The relatively cool temperatures – highs in the 60 or even 70s are more common in May – were expected to linger into the weekend as well, NWS forecasts showed.

While the cool shots spurred demand ahead of the weekend in parts of the Midwest and Northeast, prices in Texas and California fell amid comfortable high temperatures in the 70s and low 80s.

Out West, SoCal Citygate plunged 55.0 cents day/day to average $2.965 and PG&E Citygate lost 19.0 cents to $3.720.

In West Texas, El Paso Permian shed 7.0 cents to $2.595, while Waha dropped 9.0 cents to $2.570.

Price gains were strongest in the Northeast, where Tenn Zone 6 200L picked up 17.5 cents to $2.645 and Algonquin Citygate gained 17.0 cents to $2.530.

Maxar’s Weather Desk looks for additional rounds of cool air and chilly showers through the coming week, with highs in the 50s and 60 and lows in the 30s and 40s over much of the nation’s midsection, from the Mountain West and eastward.

The firm added, however, “consistency has been lacking” in forecasts through mid-May and temperatures could land “just a few degrees” shy of normal overall.