A sub-triple-digit storage injection couldn’t prevent another drop in natural gas futures on Thursday, the second in a row. Instead, reduced intensity in projected June heat sent the July Nymex gas futures contract down 3.4 cents to $3.041. August slipped 3.5 cents to $3.059.
At A Glance:
- Coming front seen not quite as cold
- Wind to loosen balances
- Cash softens
Spot gas prices reversed course, giving back some of the previous days’ gains. NGI’s Spot Gas National Avg. fell 10.5 cents to $2.745.
Nymex futures fell early in Thursday’s session as traders took a cue from the latest weather models, which showed less projected demand for the next two weeks. Specifically, the American and European models shifted the expected heat into the Rockies and Plains toward the middle of the month, reducing heat in the population centers of the eastern United States.
“It does not bring about a ‘cool’ pattern, by any means, but takes overall demand closer to normal after next week,” said Bespoke Weather services.
June is still expected to be hot overall, according to the forecaster. However, with the current outlook, it is no longer projected to land in the top three hottest Junes on record, per national gas-weighted degree days.
Interestingly, “Texas continues to be the laggard,” Bespoke said. Current weather models see no anomalous heat over the next two to three weeks, with forecasts instead showing numerous weather systems moving through the state.
The National Weather Service (NWS) said portions of South Texas and into Louisiana have experienced a “plethora of rainfall over the last month.” However, the potential exists for up to three more inches in the coming days thanks to a slow-moving upper level low.
The absence of widespread hot weather proved too much for bulls to overcome, even after the latest government inventory data initially prompted a spike at the front of the Nymex futures curve.
The Energy Information Administration (EIA) on Thursday reported an on-target 98 Bcf injection in natural gas storage inventories for the week ending May 28. This was slightly above the 96 Bcf five-year average build, but fell short of last week’s 115 Bcf injection and last year’s 103 Bcf injection.
Traders appeared to breathe a sigh of relief that the injection wasn’t larger, initially lifting the July Nymex contract a couple of cents immediately after the EIA report. However, the prompt month failed to reach the $3.090 intraday high that was set earlier in the day.
Ahead of the EIA report, estimates had coalesced around a build in the mid-90s Bcf. Major surveys produced a range from 86 Bcf to 107 Bcf; NGI modeled a 95 Bcf injection.
Broken down by region, the South Central reported a 28 Bcf increase in inventories, including a 24 Bcf build in nonsalt facilities and a 4 Bcf build in salts, according to EIA. East stocks also rose by 28 Bcf, while the Midwest rose by 23 Bcf. Pacific inventories added 12 Bcf, and the Mountain region added 7 Bcf.
NatGasWeather, which nailed the 98 Bcf injection, said it was “cooler than normal over the West and far southern U.S., while warmer than normal across the Midwest, Northeast and Mid-Atlantic” during the EIA reference period.
Next week’s build also could be larger than normal, again in the 90s-100s Bcf, aided by the Memorial Day holiday. “But there will be smaller builds lining up after,” especially for the EIA report two weeks out, “as it takes into account hotter conditions arriving next week,” the firm said.
The EIA figure indicates that the loosening trend observed in recent EIA reports has held, according to Bespoke. The firm’s end-of-season projection, which includes a hot summer, is now up more than 3,700 Bcf.
“Market reaction was initially to rally, but we still feel a drift back toward $3.00 is more likely over the next few sessions,” Bespoke said.
The downside risk is heightened as weather models Thursday continued to ease the amount of projected demand in the Lower 48 for the next couple of weeks.
Total working gas in storage as of May 28 stood at 2,313 Bcf, 386 Bcf below year-ago levels and 61 Bcf below the five-year average.
After a solid three days, spot gas prices buckled on Thursday as light demand was seen continuing through at least Saturday.
NatGasWeather said weather systems bringing showers and thunderstorms across Texas were preventing widespread heat from taking hold in the region. Similarly wet conditions were seen on the East Coast.
The downpours could serve as a sign of things to come this summer.
The meteorological team at Colorado State University on Thursday increased its forecast for the number of storms to develop this Atlantic Hurricane season, to 18 from 17. The forecasters maintained their previous outlook that called for eight storms to become hurricanes and four to reach major hurricane status with winds of at least 111 mph.
For now, strong cooling demand remained concentrated in the West, with a hot dome of upper high pressure producing an early-season heatwave, according to NatGasWeather. Daytime temperatures were set to continue breaking records as they reach the upper 80s to 100s, with the hottest weather over California and the Southwest.
National demand is expected to increase beginning late this weekend as the upper high pressure over the West is seen shifting over the eastern two-thirds of the United States. This is expected to result in highs reaching the upper 80s to lower 90s through next week, including in the important corridor from Chicago to New York City.
“Demand would be more impressive next week if not for temperatures across Texas and portions of the South being in the 80s as a slow-moving weather system brings showers,” said NatGasWeather.
The soggy forecast for Texas sent cash prices in the state lower, but the steepest declines were seen in West Texas. Waha next-day gas averaged 20.0 cents lower day/day at $2.705.
The steep drop was in line with markets farther downstream in California, where the persistent heat failed to keep prices afloat. SoCal Border Avg. spot gas plunged 27.5 cents to $3.030.
Appalachia prices moved lower as well, with losses of less than 10.0 cents. Most Northeast pricing locations came off by a similar amount, with the exception of Algonquin Citygate, which tumbled 31.5 cents to $1.915.
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