With continued volatility expected headed into prompt month expiration, and with the latest weather data lowering demand expectations for the first week of August, natural gas futures hovered close to even early Wednesday. After dipping as low as $3.874/MMBtu in the early morning hours, the expiring August contract was trading 0.7 cents higher at $3.978 at around 8:45 a.m. ET.
The September contract was also up 0.7 cents, trading at $3.949.
The European weather model dropped cooling degree day projections for the first week of August in its latest run, NatGasWeather said early Wednesday. After heat this week, temperatures for next week “won’t be nearly hot enough” to support bullish weather sentiment, according to the firm.
“With the European model shedding more demand overnight, prices are again lower,” NatGasWeather said. “It’s quite stunning; natural gas bulls were untouchable the last two months” only to see prices early Wednesday off a “hefty 32 cents” from highs around 36 hours prior.
The weather data shed demand over the weekend only to be “ignored” by markets in Monday’s trading, but after further cooler trends on Monday and Tuesday “bears finally were able to win a battle,” the firm said.
Wednesday should bring another volatile day when “another 10-15-cent move should be expected,” NatGasWeather added. “…We must expect the potential for prices to rebound when considering August futures expire at the close and there was no amount of bearish news that could prevent bulls from buying dips the past several months.”
Meanwhile, looking ahead to Thursday’s Energy Information Administration (EIA) storage report, Energy Aspects issued a preliminary estimate for a 38 Bcf injection for the week ended July 23. The firm modeled average power demand of 39 Bcf/d for the period, enough to drive a “step down in injections.”
“The market is searching for a price that will back off sufficient power sector demand or entice enough price-elastic supply to come down the pipe,” Energy Aspects said of the recently soaring natural gas prices. “With gas retaining a 60% share” of thermal generation, “prices at $3.70 were not high enough to back off sufficient power burn to give the market greater ease heading into the heating season.”
Higher prices in the physical market won’t result in an immediate response from “price-elastic” supply, according to the firm.
The Haynesville Shale “already appears to have exhausted any incremental short-term growth without the addition of rigs, as shown by the lack of response to the steep upward trajectory in cash prices over the past several weeks,” Energy Aspects said.
September crude oil futures were trading 57 cents higher to $72.22/bbl at around 8:45 a.m. ET.
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