After rallying sharply to start the week, natural gas futures were trading close to even early Thursday as the market continued to monitor the prospects of a return to hotter temperatures early next month.
Coming off a 66.1-cent rally in the previous session, the June Nymex contract was up 0.9 cents to $8.753/MMBtu at around 8:55 a.m. ET. July was down 1.3 cents to $8.814.
Monday’s rally demonstrated that given a “bullish fundamental environment and a price-inelastic market” Nymex futures “can surge any time with no warning,” EBW Analytics Group analyst Eli Rubin said.
“Amplified volatility remains likely ahead of options expiration and final settlement tomorrow and Thursday,” Rubin added. “Yesterday’s breakout establishes a bullish technical outlook suggesting natural gas could soon clear $9.00.”
Still, cooler trends for the early June forecast could limit near-term upside potential for prices, according to the analyst.
Maxar’s Weather Desk in its updated outlook Tuesday continued to project warmer-than-normal temperatures from the Midwest to the East from Sunday through June 2.
“Low pressure tracks into the Midcontinent during the early stages of the period, separating a cooler air mass to its west from warmer conditions further east,” Maxar said. “…Above and much above normal temperatures are from the Midwest to the East, including peaks near 90 degrees in Chicago early next week and in the Mid-Atlantic during the second half.”
Further out in the June 3-7 time frame, Maxar called for a transition to cooler temperatures for the Midwest and East, with above-normal temperatures focused in the Southwest.
Looking at the supply picture, Wood Mackenzie estimates showed a roughly 1.4 Bcf/d day/day decline in production early Tuesday, with output sitting at roughly 94.7 Bcf/d. Wood Mackenzie analyst Laura Munder said the declining output coincided with regional “maintenance or operational issues.”
Northeast volumes were showing a roughly 600 MMcf/d drop, primarily from Northeast Pennsylvania. Notable declines were also observed from the Permian Basin (down about 445 MMcf/d) and the Rockies (down around 175 MMcf/d), according to Munder.
Based on underlying fundamentals, the prompt month appears poised to continue climbing, according to Bespoke Weather Services.
“We have no changes in our overall ideas, which remain that we should see new highs in prompt month pricing with this fundamental setup,” Bespoke said. “…June contract expiration is coming up, with options expiration tomorrow, and full contract expiration Thursday. As we know, contract expirations often add even more volatility into the mix.”
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