After plunging close to $8.50/MMBtu just before the open, natural gas futures clawed most of the way back throughout Friday’s session despite little day/day change in fundamentals. The September Nymex gas futures contract settled at $8.768/MMBtu, down 10.6 cents from Thursday’s close. October fell a steeper 11.9 cents to $8.744.

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At A Glance:

  • Cooler trends keep coming
  • Bigger storage injections needed
  • Gulf Coast may get heavy rains

Spot gas prices continued to strengthen despite the typical demand lull seen during the three-day delivery period. NGI’s Spot Gas National Avg. ticked up 3.0 cents to $8.360.

No doubt it’s been an interesting week in the gas market. Futures have flown higher much of this week in the face of cooler weather. Early Friday, it appeared the continuingly cooling outlook was finally starting to bring futures prices back down to earth. The September Nymex contract touched an $8.516 low ahead of the open but then rallied all the way back to $8.919.

NatGasWeather said there were no major day/day changes for natural gas traders to cling to and potentially explains why prices were choppy on Friday. Of course, there were three straight days of “impressive” gains, too, it noted.

The overnight European weather model held a seasonal national demand pattern for much of the next 15 days as weather systems are forecast to track across the eastern half of the United States. The midday Global Forecast System model lost a little demand for the eight- to 15-day forecast, but it is still much hotter than the European model and is expected to shed demand in time since it has been running much too hot in recent weeks.

“Essentially, the natural gas markets made it clear this week they were moving higher despite cooler trending and less impressive weather patterns,” NatGasWeather said. “History suggests when this occurs, bears best not fight it.”

At the same time, hefty storage deficits remain with only 12 reporting periods left in the traditional injection season. Mobius Risk Group noted that with total inventories still trailing far behind historical levels, for there to be any chance of reaching the 3.5 Tcf mark ahead of winter, there would have to be a string of triple-digit builds in October.

The final month of the injection season should be very interesting, according to Mobius. The  market is likely to contemplate four considerable forces: 1) the final month of hurricane season, 2) the restart of Freeport LNG, 3) the desperate need for triple-digit builds and 4) the annual shift from cooling to heating demand.

In the near term, the storage week ending Aug. 11 is effectively flat in terms of week/week degree days, according to Mobius. However, a sample of publicly reported storage suggests the next storage build could be half of that reported on Thursday.

Lower production and more than a 10 GWh decline in wind generation have combined to support a lower reported storage build in the next EIA report, Mobius said. Higher net exports in the form of shipped liquefied natural gas and pipeline gas to Canada and Mexico also have contributed to projections for a lower storage injection.

“Where the next number actualizes will be important since the same week last year had similar weather, albeit slightly cooler, and the EIA reported a 38 Bcf storage build,” Mobius analyst Zane Curry said. “If we get a result materially lower than 38 Bcf, the market will become increasingly concerned about the potential for year-over-year deficit contraction.”

[Want today’s Henry Hub, Houston Ship Channel and Chicago Citygate prices? Check out NGI’s daily natural gas price snapshot now.]

Higher Cash Prices

Spot gas prices spiked again Friday as wind generation plummeted even lower than the already soft levels seen earlier in the week. With little improvement in the next several days, elevated power burns were expected to remain propped up a bit longer.

However, it is also worth mentioning that there is a weak tropical system along the U.S. Gulf Coast that has small odds of developing within the next several days. Any rain resulting from the system could lower cooling demand and possibly boost wind output.

In a Friday afternoon update, the National Hurricane Center (NHC) said disorganized showers and thunderstorms over the north-central Gulf of Mexico are associated with an area of low pressure centered just offshore of the southern coast of Louisiana. Development, if any, of this system is expected to be slow to occur as it drifts west-southwestward and approaches the Texas coast over the weekend.

Regardless of development, locally heavy rains were possible along portions of the Texas coast through the weekend, according to NHC. The agency gave the system a 10% chance of formation by Wednesday.

Despite the chances for rain along the Gulf Coast, cash prices rallied. NGPL S. TX spot gas prices climbed 24.5 cents to average $8.265 for gas delivery through Monday. Transco Zone 2 picked up 60.5 cents day/day to average $9.000.

Henry Hub cash was up 21.5 cents to $8.750, while Florida Gas Zone 3 tacked on a half-cent to hit $9.110.

Prices throughout Appalachia and the Northeast were a mix of gains and losses, but the majority of locations shifted less than 20.0 cents day/day. Iroquois Zone 2 jumped 13.0 cents to average $8.420.

Small changes were seen farther West as well. Rockies locations shifted less than 15 cents, but bigger moves took place in California. PG&E Citygate cash jumped 25.5 cents to average $9.960 for the three-day gas period ahead of a heat wave, while prices in the southern part of the state crumbled on cooler weather ahead.