Natural gas futures traded in the red much of Friday but staved off a fifth-consecutive decline, recovering some ground from the steep losses posted a day earlier after a colossal storage build spooked markets and amplified entrenched supply/demand worries.
The July Nymex contract rose 1.3 cents day/day and settled at $1.495/MMBtu. The July contract moved off the board at the close of Friday’s trading. The modest gain followed an 11.5-cent drop the previous day, which dragged futures to a 25-year low. August fell two-tenths of a cent on Friday and settled at $1.544.
NGI’s Spot Gas National Avg. fell 7.5 cents to $1.395.
Bespoke Weather Services said Friday that both American and European weather forecasts included stronger heat across the Midwest and East, “as the pattern settles into a classic La Niña look for this time of the year” and gives markets reason to believe more cooling demand lies in the month ahead to offset a host of headwinds.
The firm added: “Highs into the 90s may grow common as far north as Chicago, Detroit and parts of the Northeast. The lack of Atlantic blocking keeps the focus of above-normal heat out of the southern U.S., though temperatures are no worse than normal in this region. All of this adds up to a rather impressive look in terms of total national demand as we head toward the middle of summer.”
But it was not enough to overshadow the challenges that dogged gas markets most of the week.
The latest storage report soared past expectations and, along with an ongoing pandemic that has curbed industrial energy needs, kept futures in check for most of Friday.
The U.S. Energy Information Administration (EIA) on Thursday reported an injection of 120 Bcf into natural gas storage for the week ending June 19, lifting inventories to 3,012 Bcf and putting stockpiles well above the five-year average of 2,546 Bcf.
Analysts had anticipated a triple-digit injection, given mild weather and lackluster liquefied natural gas (LNG) feed gas flows during the covered week, but the latest figure eclipsed the high end of expectations produced by major polls. Low South Central cash market prices proved an important culprit. Marketers in the region injected a lofty 39 Bcf into storage.
EBW Analytics Group said the “monster” injection was the largest since April 2019.
“The effect of this huge storage miss,” EBW said, “is to throw into doubt analysts’ projections for storage injections later this summer, and to significantly increase the risk of a storage availability squeeze this fall, which could drive gas prices even lower.”
Paltry LNG feed gas demand and weak U.S. export levels amid the sluggish economic activity imposed by ongoing coronavirus outbreaks could worsen in July. LNG remains far off pre-coronavirus levels, with little demand from important pre-pandemic export destinations in Europe and Asia.
Tudor, Pickering, Holt & Co. (TPH) analysts cited media projections of up to 45 cargo cancellations in July, following an estimated 30 to 35 cancellations in June. TPH modeled 3.7 Bcf/d of feed gas demand for July, down from an already soft June average of about 4.0 Bcf/d.
“Gas was already a runaway train this week, and Thursday’s storage report put a crate of dynamite on the tracks,” the TPH team said.
However, as more intense summer heat settles in, weather-driven demand could prove an offset, the TPH analysts said. “We see the market being much tighter” than the latest injection number suggests, “and expect this to be reflected” in the next EIA print, where normal weather is expected to drive a seasonally normal build of 70 Bcf.”
The wildcard, of course, is continued coronavirus spread and its potential to once again cripple domestic and global economies, threatening to keep overall energy demand in check and LNG on ice. U.S. virus case totals reached daily record levels in June, driven by resurgences in heavily populated states such as California, Florida and Texas.
In Texas, Gov. Greg Abbott on Thursday paused the state’s reopening efforts and then on Friday ordered all bars across the state – thought to be a key source of rapid spread – to close and restaurants to reduce capacity. Abbott also put new restrictions on outdoor gatherings. Governors in other states were also enacting new containment measures.
The actions roiled stock markets, with investors worried that the disease was out of control and that a broader economic recovery was in new jeopardy. A stalled economy could further hamper commercial and industrial needs for natural gas just as peak summer heat would drive cooling demand.
“If hospitals start to become overrun” in multiple states, that would “signal that there are rough waters ahead,” said Raymond James & Associates analyst Chris Meekins.
Spot prices retrenched Friday even as forecasts called for more heat in coming days across the Lower 48.
NatGasWeather sees intensifying overall heat trends moving into the first full week of July, with widespread highs of upper 80s and 90s, along with 100s in swaths of the southern and western United States.
“We view the pattern as hot enough to be considered bullish since it will result in above-normal cooling degree days,” the firm said. “However, oversupplied conditions continue to weigh on prices.”
ANR SE was among only a handful of exceptions to the rule, rising 4.0 cents to $1.400.
On the pipeline front, Southern California Gas (SoCalGas) said it would begin maintenance work Monday that is to disrupt 130 MMcf/d of imports in addition to the 155 MMcf/d already impacted from L235-2 work. Genscape Inc. said the new project “will require zero flow at the Needles points, which have brought in an average of 131 MMcf/d in the last month.” The work is scheduled to culminate on July 17.
“SoCalGas should mostly be able to accommodate for this newest reduction by increasing its receipts from the Topock points,” Genscape said. “There is even ample available capacity for gas to continue flowing to SoCalGas from Transwestern, via the Topock interconnect instead of the Needles interconnect.”
Additionally, Cheyenne Connector Pipeline launched operations Friday. A total of 162 MMcf/d of receipts were nominated as of evening cycle data, Genscape said, with all of it flowing northbound to an interstate interconnect with Rockies Express Pipeline.
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