Bolstered by a toasty temperature outlook for the second week of August, natural gas futures shrugged off cooler trends for next week to pare their recent losses in early trading Tuesday. After selling off 7.4 cents in the previous session, the August Nymex contract was up 4.1 cents to $1.775/MMBtu at around 8:40 a.m. ET.
Carrying over cooler trends from Monday, the overnight guidance maintained a milder temperature outlook for next week, forecaster NatGasWeather told clients Tuesday.
In recent runs cooling degree day expectations for the period starting Saturday through Aug. 6 have dropped to near-normal levels, likely disappointing the market since temperatures “need to be above normal to satisfy,” the forecaster said. “The pattern Aug. 7-11 still looks very warm to hot over most of the U.S. as heat again tries to gain territory.” However, the pattern remains “susceptible to cooler trends in time. It’s important Aug. 7-11 remains hot or it could also disappoint.”
Based on expectations for cooling demand to “sink rapidly” over the course of the work week, analysts at EBW Analytics Group projected a 2.9 Bcf/d drop in power burns between Monday and Friday, putting downward pressure on spot market demand as the August contract rolls off the board.
“With August options expiring at the close and a large number of puts and calls potentially still in the money, trading is likely to be highly volatile today, with the potential for the August contract to rise or fall sharply,” the EBW analysts said. “Any gains are likely to be erased tomorrow, though, with the September contract falling further once it becomes the front month.”
Meanwhile, on the exports front, U.S. pipeline supply to Mexico has reached record highs, according to estimates from Genscape Inc. Last week, during the July 20-24 period, the United States exported close to 6.4 Bcf/d to Mexico via pipeline, the firm said.
This marks the “strongest five-day period ever seen in the market,” Genscape analyst Ricardo Falcon said in a note to clients early Tuesday. “This stage includes three of the five highest single-day values so far recorded, with July 21 setting a new maximum of almost 6.6 Bcf/d.”
Summer-to-date, Genscape estimates show net border flows from the United States to Mexico averaging more than 5.3 Bcf/d, in line with flows observed from April 2019 to October.
“The overall surge in U.S. exports to Mexico indicates that the latter’s demand for gas continues to recover from the disruptions caused in April and May by the coronavirus pandemic,” Falcon said.
September crude oil futures were off 14 cents to $41.46/bbl at around 8:40 a.m. ET, while August RBOB gasoline was down fractionally to $1.2721/gal.
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