Natural gas futures retreated Friday, ending five days of frenzied rallying, as markets assessed an increase in production and traders took profits. The June Nymex gas futures contract fell 74.0 cents day/day and settled at $8.043/MMBtu. July dropped 71.3 cents to $8.128.

market

At A Glance:

  • Traders take profits
  • Production inches ahead
  • Demand drivers loom large

The prompt month, which reached $8.783 on Thursday, still finished the week up 11%.

Following a frenetic rally of its own this week, NGI’s Spot Gas National Avg. dipped 1.5 cents to close at $7.985 on Friday.

Production, after hovering as low as 93 Bcf this week – far from highs above 96 Bcf earlier in the year – was back to around 95 Bcf on Friday, according to Bloomberg’s estimate. This provided some relief that output is beginning to recover following late-season blizzards in the North that caused freeze-offs and prolonged production interruptions. Spring maintenance work also has hampered output.

“Trees can only grow so high,” StoneX Financial Inc.’s Tom Saal said of the rally’s end.

Saal, StoneX’s senior vice president of energy, told NGI some market participants sold off to claim profits while others, viewing prices as simply too high, moved to the sidelines. “Pricing just got to a point where even the most aggressive buyers said enough is enough,” he said.

The bump in production likely influenced markets as well. Though Saal noted output estimates have been choppy and are likely to remain so until maintenance culminates. Even then, production may struggle to keep pace with demand if summer cooling season starts early and proves intense, as forecasters are predicting.

Saal also noted that exploration and production companies are grappling with soaring inflation that hit a four-decade high this year as well as chronic labor shortages.

“We haven’t seen inflation like this in natural gas markets,” Saal said. “So it’s a big wildcard. And it’s really hard right now to pick a top as far as prices. We could still go higher.”

The U.S. economy added 428,000 jobs in April, the Labor Department reported Friday. The jobless rates held steady at 3.6%. With 12 straight months of employment growth, competition for employees is fierce and turnover rates are elevated, the federal data show.

Demand Catalysts

Steady demand for U.S. liquefied natural gas (LNG) amid Russia’s war in Ukraine is bound to remain a key driver for the bull case, Saal added. European countries are moving with urgency to wind down their dependency on Russian gas and are looking for U.S. exports to fill the void. LNG feed gas volumes have mostly held at or near capacity since the onset of the war in late February.

Early summer weather in the South proved a catalyst for prices much of the week and could again, Bespoke Weather Services said.

“We have some very impressive heat on the way in the South,” the firm said. Cooling degree days in Texas and neighboring states “are forecast to hit daily records potentially on several days over the next week to 10 days,” given forecasts for highs in the 90s and low 100s.

Friday’s pullback aside, “momentum is clearly bullish and psychological resistance at the $9.00 mark may not hold for long,” said EBW Analytics Group’s Eli Rubin, senior analyst. “With little change in the storage trajectory,” he added, “the balance of price risks for natural gas into early summer remains sharply higher.”

The Energy Information Administration (EIA) on Thursday reported a 77 Bcf injection into U.S. natural gas stockpiles for the week ended April 29. The build left inventories at 1,567 Bcf, 306 Bcf below the five-year average.

On the supply side, analysts at Tudor, Pickering, Holt & Co. (TPH) noted recovering volumes out of the Bakken Shale in North Dakota. However, the increase was still “offset to some degree by Gulf of Mexico flows, which have again headed lower, owing to maintenance across various fields.”  

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Against that backdrop, analysts at The Schork Report cautioned Friday that loftier prices may lie ahead: “We are afraid the bulls are gunning for the psychological target for $10/MMBtu.”

Cash Prices Fade

Spot gas prices declined Friday after a massive rally earlier in the week. Physical markets were led lower by price declines in California, where comfortable temperatures in the 60s and 70s settled in on Friday and were expected to hang around for several days.

SoCal Citygate dropped 27.5 cents day/day to average $7.950, while Southern Border, PG&E fell 14.5 cents to $7.945 and SoCal Border Avg. lost 16.5 cents to $7.970.

Elsewhere, prices were mixed in the central United States and East. Joliet in the Midwest shed 5.5 cents to $7.970, but Columbia Gas in Appalachia gained 5.5 cents to $7.650.

NatGasWeather said over the weekend and into the week ahead, rain and thunderstorms were expected to push across the northern United States, along with mild to cool overnight lows of 30s and 40s.

The southern third of the country, however, “will be warm to hot” with highs of 70s to 90s, along with highs around 100 across Southwest deserts, Texas and the Southern Plains, the forecaster said.

Heat should spread across the Great Lakes and Missouri Valley over the coming week, with highs near 90 in some areas, igniting early season cooling demand in parts of the North, the firm said.

Looking to mid-May, NatGasWeather expects another round of weather systems to track across the west-central and northern United States with showers and moderate highs of 50s to 70s. But the southern United States is projected to remain hot, baking under highs from the 80s to 100. The most intense heat is expected to fester in Texas and the Southwest.