As extreme heat in the West was expected to continue supporting prices at the front of the curve, natural gas futures rallied in early trading Tuesday. The September Nymex contract was up 9.3 cents to $2.432/MMBtu at around 8:40 a.m. ET.
California has been hit with record heat and rolling blackouts that have coincided with spiking natural gas prices in the spot market, including SoCal Citygate prices that shot up above $13 for Tuesday delivery.
“Rolling blackouts in California Independent System Operator (CAISO) service territory were the result of extreme hot weather throughout California as well as unplanned short-term supply dips from multiple gas plants and from wind generation,” Genscape Inc. analyst Joseph Bernardi said in a note to clients. “…Gas demand in particular peaked over this weekend and will continue to do so this week.”
Southern California Gas system-wide demand has topped 3 Bcf/d for the first time in months, Bernardi said, with early cycle data pointing to demand of 3.2 Bcf/d for Tuesday.
Analysts at EBW Analytics Group have pointed to the extreme heat in California to help explain the recent strength in natural gas futures.
“Soaring gas prices in California” on Monday “continued to drive prices at Henry Hub higher, providing support for the front-end of the forward curve,” they said. “…While continued extreme heat in the West is likely to provide support again today, cash prices are expected to soften later in the week.”
Meanwhile, analysts at Energy Aspects dubbed the rally that began earlier this month a “market mirage,” suggesting the move higher has been “amplified” by positioning among speculators and is not fully justified by fundamentals.
“If we assume the forward curve holds, we would lose an additional 80 Bcf or so of gas in power demand in September and October, pushing our projected end-of-season carryout close to 4.05 Tcf,” Energy Aspects analysts said in a recent note to clients. “Using the forward curve for the heating season would push our end-March 2021 carryout toward 1.55-1.60 Tcf, a stockout that in our view is higher than what the market needs to be pricing in…The spark lit by fundamentals has clearly been amplified by positioning, and any reversal in positioning could see price fall once more.”
As seasonal cooling demand begins to fade in September, the firm’s balances indicate weekly injections would push up into the 60-70 Bcf range, enough to see stocks exit the month at 3.7 Tcf.
“However, if we take into account the current forward curve for power burn, each weekly addition could in fact be closer to 70-80 Bcf,” the Energy Aspects analysts said.
September crude oil futures were off 14 cents to $42.75/bbl at around 8:40 a.m. ET, while September RBOB gasoline was trading fractionally higher at $1.2704/gal.
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