Natural gas futures scratched out a modest gain Monday after Tropical Storm Cristobal made landfall a day earlier, forcing shut-ins but also bringing cooler air to the South. Entrenched worries about weakness in demand from liquefied natural gas (LNG) export facilities curbed price momentum.
The July Nymex contract traded in a narrow range of gains and losses throughout much of the day and settled at $1.789/MMBtu, up seven-tenths of a cent day/day. August rose six-tenths of a cent to $1.892.
Spot gas prices were mixed across the country, but NGI’s Spot Gas National Avg. inched up 3.0 cents to $1.585.
The Interior Department’s Bureau of Safety and Environmental Enforcement said as of 12:30 p.m. ET on Monday, about 35% of natural gas and 34% of oil output produced in the Gulf of Mexico remained shut-in after Cristobal’s landfall in Louisiana, hindering near-term production levels.
Personnel remain evacuated from 179 platforms, or nearly 28% of the manned platforms. Personnel also remain evacuated from three non-dynamically positioned rigs, equivalent to close to 38% of the eight in operation. Another three dynamically positioned rigs remained off location, out of Cristobal’s path as a precaution, representing close to 38% of 18 total.
However, some researchers said shut-ins likely would create only modest production declines, given that Cristobal weakened to a tropical depression once it came ashore. The cooler air that pushed in with the storm’s winds may put some near-term, downward pressure on energy demand, Bespoke Weather Services said.
“Data shows a small decline in production,” likely from Cristobal impacts over the weekend, “but LNG has moved back lower as well, down under 4.0 Bcf once again,” Bespoke said in a note Monday. “This is the data point that has the market concerned, as traders want to see evidence that we can maintain the tightening of supply/demand balances with LNG at much lower levels.”
Gas flowing to LNG export plants is well below pre-coronavirus pandemic levels, a result of weak prices in Europe and Asia following government-imposed lockdowns to slow spread of the virus that curbed demand for U.S. exports.
“We see natural gas pricing skewed to the downside in the near term, as LNG feed gas losses and production increases are expected to weigh on the commodity,” Tudor, Pickering, Holt & Co. (TPH) analysts said.
With a recovery in oil prices in May from steep lows in April, more U.S. oil producers are gradually increasing output, a development that could lead to increased associated gas production and, by extension, boost gas supply at a time when overall demand remains precarious given muted economic activity imposed by virus fallout.
Even as domestic production recovers, oil prices could get support from the decision by the Organization of the Petroleum Exporting Countries and allied nations over the weekend to extend substantial production cuts through the end of July. Additionally, on Sunday, OPEC leader Saudi Arabia announced a big jump in its July prices.
Waning LNG feed gas demand, coupled with the return of associated volumes, “makes for a challenging near-term setup,” the TPH analysts said.
BMO Capital Markets analysts agreed that oil prices had reached an inflection point, as economies begin to reopen and demand for gasoline increases in tandem. Still, they said that meaningful risks still loom large.
“The possibility of another Covid-19 outbreak remains a risk to the demand outlook, along with the likelihood of slower economic growth due to job losses and rising debt levels. Government stimulus packages have so far cushioned the economic blow; however, they can’t last forever.”
The U.S. unemployment rate improved in May from the previous month but still topped 13%. “The bottom line is that we expect the momentum in the crude oil price recovery to slow over the coming months as the market assesses the new normal,” the BMO analysts said.
Spot gas prices were down in several regions, including West Texas and the Midcontinent, but advanced overall.
The weather outlook, meanwhile, remains mixed with heat in Texas and the Southwest, creating regionally strong demand as air conditioners crank up to cool homes and businesses, but with mild temperatures coming this week in the Midwest and East, according to NatGasWeather.
The firm said next week could bring more widespread heat. The northern and eastern United States were forecast to see temperatures warm into the 80s and near 90 June 19-21. The Southwest and Texas were to remain hot with highs in the 90s to 100s, while the South and Southeast were expected to see highs through June 18 in the 80s to near 90, then pushing into the 90s for the June 19-21 period, according to NatGasWeather.
“Overall, the pattern is quite warm over many regions with highs of 80s and 90s, focused across the southern and central U.S.,” the forecaster said. “But with the East failing to get hot enough late this week through much of next week, the pattern just isn’t as scary as needed to be considered full fledged bullish. But if there were to be hotter trends” after next Monday (June 15), “the pattern would quickly become hot enough to satisfy.”
In California, SoCal Citygate prices climbed 9.5 cents day/day to average $2.140, and in the Northeast, Algonquin Citygate jumped 27.5 cents $1.660. In Appalachia, Dominion North advanced 13.0 cents to $1.450.
On the pipeline front, Southern Natural Gas on Sunday declared a force majeure from issues on its Cypress Line between Savannah, GA, and Jacksonville, FL, according to Genscape Inc. The firm said the outage restricted operational capacity on the line beginning Monday, and scheduled flows on the Cypress Line declined about 266 MMcf/d over the weekend in preparation for the repairs. Work is slated for completion early next week.
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