One day after posting the largest single-day gain in the last year and a half, natural gas futures moved another leg higher, surging past the long-term high established earlier this year. September Nymex gas settled Tuesday at $2.193, up 9.2 cents from Monday’s close. October rose 9.5 cents to $2.334.
Spot gas prices also continued to rally across most of the Lower 48, boosting NGI’s Spot Gas National Avg. by 13.0 cents to $1.920.
After Monday’s explosive move higher at the front of the Nymex futures strip, analysts questioned whether the rally had staying power.
On one hand, stronger gas pricing in Europe on Monday reflects a potential recovery in liquefied natural gas (LNG) demand. The prompt month landed price in the Netherlands increased by 25 cents versus Friday, “a noticeable improvement” for the U.S. market, which is eagerly awaiting a “return to normal” for LNG exports, according to Mobius Risk Group.
“The arbitrage to move U.S. Gulf Coast molecules to the Netherlands is likely still inside shipping economics, but directionally this change certainly helped lift near-term Nymex prices,” the Houston-based firm said. For reference, the September Title Transfer Facility contract traded as low as $1.83 on July 20.
NatGasWeather analyst Andrea Paltrinieri viewed the data point as the primary reason behind Monday’s spike, with several analysts extrapolating an LNG recovery in the third quarter of up to 7- 8 Bcf/d. “A lot must happen before that; however, reaching 4 Bcf/d would be helpful if it were to hold.”
[How much U.S. natural gas production is going to LNG export? Find out with NGI’s U.S. LNG Export Tracker.]
Lower production also factored into Monday’s rally, and although revisions are likely, bulls welcomed a sign that sequential declines are forthcoming, Mobius said. “It is, of course, much too early for market bulls to declare victory in respect to August production; however, having the first three days of the month average 1 Bcf/d below the July average is a plus.”
Meanwhile, after several cooler runs over the past week, weather forecasts finally added back in some demand for August, though models remain at odds over the intensity of heat in the coming weeks.
Overlooked in these stories, however, is the fact that August is typically when natural prices tend to bottom seasonally, said Powerhouse Chairman Alan Levine. This may be the most important reason natural gas performed strongly as August trading opened, he said.
“Traders should be careful. The daily high of $2.154, as bullish as it was, did not exceed the longer-term high of $2.162,” he said after the close of trading on Monday.
However, that changed on Tuesday.
Futures traders attempted several runs above $2.162 throughout Tuesday’s session before finally being able to sustain that level. Even more remarkable is that the rally held even after the midday Global Forecast System (GFS) data shifted cooler for Aug. 14-19, with the model now sitting more than 15 cooling degrees days above its European counterpart.
“Until either the GFS gains demand, which it failed to do this run, or the European model loses demand, the amount of heat across the northern U.S. for mid-next week and beyond isn’t a lock,” said NatGasWeather.
The firm’s analysts questioned whether September prices were holding up because big players now see the natural gas markets as a buy, even after a 40-cent spike. “Or has buying Tuesday been due to trapped shorts still trying to execute their escape plan?”
ICAP Energy AS analyst Brian Larose said the big question is whether bulls can muster the strength to keep the rally going. “If they can, a push to $2.252-2.257-2.303-2.342, even $2.401-2.472 becomes possible from here. They just need to climb above $2.162-2.169.”
How spot prices behave over the next couple of weeks likely will factor heavily on futures, according to Mobius. Henry Hub cash jumped up near $1.90 on Monday, and several other Gulf Coast locations fared even better with increases of 20 cents or more relative to the weekend package. On Tuesday, prices continued to strengthen, with the benchmark moving above $2.00 and other U.S. markets following suit.
Meanwhile, the storage trajectory continues to be important. The average rate of injections into storage is 11% higher than the five-year average so far in the refill season, Levine noted. Even if the rate of injections matched the five-year average of 9.2 Bcf/d for the remainder of the refill season, total U.S. inventory would be 4,152 Bcf on Oct. 31, which is 429 Bcf higher than the five-year average of 3,723 Bcf for that time of year.
Market action over the past couple of days pointed to lower fears of containment this fall. On Friday, October stood 96 cents below the January contract. By Tuesday, that discount collapsed to 73 cents.
Another Cash Rally
Even as former Hurricane Isaias washed ashore North Carolina on Monday and wiped out power along the East Coast, spot gas prices remained upward bound across the country on Tuesday.
Most gains trailed those seen a day earlier, but several U.S. hubs still notched double-digit increases. In the Northeast, Transco Zone 6 NY was up 15.0 cents to $1.790, while in Appalachia, Dominion South jumped 10.5 cents to $1.545.
The stout increases along the Eastern Seaboard came even as Isaias spread torrential rains and strong winds throughout the region through southwestern New England. Isaias made landfall near Ocean Isle Beach as the Atlantic’s ninth storm. It also was the fifth to hit the contiguous United States this year, the fastest that both those milestones have been achieved in records dating to 1851, according to AccuWeather.
The forecaster said there is a high potential that the 2020 hurricane season could become “hyperactive” as the peak nears, and tropical storm numbers may end up rivaling the historic 2005 season numbers, which produced 28 storms. AccuWeather meteorologists were monitoring a few areas of disturbed weather beyond Isaias.
Utilities quickly got to work restoring power. Consolidated Edison Inc. brought in 220 additional workers to help restore power to the 127,000 of its customers affected by the storm. About 3,000 customers throughout New York City and Westchester County had been restored by Tuesday afternoon.
Elsewhere across the United States, Midwest spot gas prices were around 10.0 cents higher more or less, while Texas prices jumped a bit more.
Waha next-day gas averaged $1.545 after climbing 63.5 cents on the day, likely because of the completion of a force majeure Monday on El Paso Natural Gas (EPNG), which allowed for slightly more export flow westward out of the Permian Basin. However, the capacity reductions stemming from Line 2000 smart pig runs at the same meter remained unchanged.Farther west, Cheyenne Hub cash was up 7.5 cents to $1.770.
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