• Futures fell for a second consecutive session
  • EIA reported a storage injection of 60 Bcf
  • Export levels to Mexico held strong

Natural gas futures slipped lower for a second consecutive session on Thursday, despite a bullish government inventory print and continued robust demand for both U.S. liquefied natural gas (LNG) and pipeline exports.

EIA storage April 30

The June Nymex contract fell 1.0 cent day/day and settled at $2.928/MMBtu. The contract lost 2.9 cents on Wednesday. July shed eight-tenths of a cent to $2.974 on Thursday. 

NGI’s Spot Gas National Avg. declined 5.5 cents to $2.705.

The prompt month has repeatedly bumped up against the $3.00 threshold in recent sessions but failed to close above it. Futures remain well off the 2021 high of $3.316 reached in February amid the spike in demand caused by Winter Storm Uri. However, they are well above the spring season low near $2.450 early last month.

LNG feed gas levels approached 11.7 Bcf on Thursday, hanging close to record levels. Cool weather and waning supplies in Europe continue to fuel strong demand for U.S. exports. Demand from Asia remains elevated, too, analysts said.

Refinitiv analyst Shuya Li, participating on The Desk’s online energy platform Enelyst, said cargo cancellations, a challenge amid the coronavirus pandemic in summer 2020, are unlikely this year with demand holding steady at lofty levels.

“I think the general view is that we are seeing little to no cancellations, and forward spreads continue to suggest full dispatch of U.S. LNG this summer,” Li said. “Our model suggests 11-12 Bcf/d feed gas demand this summer.”

U.S. pipeline exports to Mexico also are near record levels – regularly approaching 7 Bcf/d. “This summer, overall pipeline exports will be nearly 0.8 Bcf/d higher year-on-year,” Li estimated.

Storage Report

Export activity helped keep overall natural gas demand solid during the week ended April 30, the period covered by the U.S. Energy Information Administration’s (EIA) latest storage report. The agency on Thursday posted an injection of 60 Bcf into storage for the week. The print came in a few ticks below expectations, but it failed to galvanize market support.

Analysts on The Desk said traders likely noted that the result was four times greater than the week earlier injection and that it signaled larger injections to come in May. Early estimates for next week’s report were for builds in the 70s-80s Bcf.

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“We do feel some loosening will occur in the next few numbers, which is likely why the market has accepted this week’s strong number without another jump higher in prices,” Bespoke Weather Services said. The firm’s model preliminarily estimated an 80 Bcf build with next week’s report.

For this week’s print, estimates generated by Reuters and Bloomberg polls landed at medians of 65 Bcf, while a Wall Street Journal survey produced an average of 62 Bcf. NGI’s model predicted a 76 Bcf increase.

Last year, EIA recorded a 103 Bcf injection for the similar week, and the five-year average is an 81 Bcf build.

The build for the April 30 week lifted inventories to 1,958 Bcf, though the total was well below the year-earlier level of 2,303 Bcf and slightly below the five-year average of 2,019 Bcf.

By region, the South Central build of 20 Bcf led all others. The Midwest and East regions followed closely with builds of 15 Bcf and 13 Bcf, respectively, according to EIA. Pacific inventories grew by 7 Bcf, while Mountain region stocks increased by 5 Bcf.

EBW Analytics Group CEO Andy Weissman said markets are “wary of near-term technical resistance” at or above $3.00. Still, fundamentals support higher prices by summer.

“Surging demand, underscored by seasonal peaks in power demand, record LNG and Mexico exports, and a robust domestic economy — all set against flat production — create growing fundamental imbalances,” Weissman said.

Looking Ahead

Economic data released Thursday added to Weissman’s argument. U.S. jobless claims fell to 498,000 last week. The U.S. Labor Department said the latest figure was down from 590,000 in the prior week and marked a new low since the onset of the pandemic in March 2020.

The government releases its monthly employment report for April on Friday. Economists polled by Dow Jones forecast on average that the U.S. economy added one million jobs last month. With more than 40% of adults in the United States now fully vaccinated against the virus, Americans are spending more and fueling economic growth, providing employers reason to continue hiring.

As activity accelerates, analysts said domestic commercial and industrial energy needs could mount and drive further incremental increases in natural gas demand this summer.

Chief economist Scott Brown of Raymond James & Associates Inc. said the U.S. economy could boom in the second half of 2021 as state economies fully reopen and pent-up consumer demand drives further spending. This could provide an exceptional, though not sustainable, level of activity.

Spending should “rebound more rapidly” as “the pandemic fades,” Brown said.

Cash Clunks

Spot gas prices sputtered for a second straight day even as seasonally cool temperature permeated much of the northern and eastern portions of the country.

Heating-degree days (HDD) are above average, but “this late in the season they simply don’t have as great of an impact” on prices when “compared to the core winter months,” NatGasWeather said.

With a few exceptions, next-day cash prices were mostly down throughout the Lower 48 on Thursday.

Prices dipped across most of the central U.S., including Texas, with Katy down 11.5 cents day/day to average $2.915 and Waha off 2.5 cents to $2.660.

In the West, SoCal Citygate lost 30.0 cents to $3.515 and SoCal Border Avg. shed 13.0 cents to $2.900. In the East, meanwhile, Dominion South dropped 6.0 cents to $2.270 and Tenn Zone 4 200L fell 8.0 cents to $2.605.

Looking ahead, weather could have an impact on prices in coming days, forecasters said.

“…Colder trends have held through the middle of next week as a barrage of weather systems sweep across the U.S. with showers, thunderstorms, and cooler than normal highs of 50s and 60s, lows of 30s and 40s,” NatGasWeather said. This will create “stronger-than-normal late-season demand focused over the Midwest/Plains/Great Lakes and Northeast.”

That noted, “cooling will also push into Texas, the South and Southeast at times to drop very warm conditions into the comfortable highs of 70s to 80s for lighter cooling needs across the southern U.S.,” the firm said.

Further out, forecasts pointed to “a light national demand pattern for May 13-20 as the southern U.S. becomes warm to very warm with highs of 80s to 90s, although countered by HDDs fading across the northern U.S. as highs reach the comfortable 60s to lower 80s.”