Natural gas futures probed higher early Friday as analysts pointed to tightness in the supply/demand balance following the latest round of government inventory data. The August Nymex contract was up 4.7 cents to $3.661/MMBtu at around 8:50 a.m. ET.
The Energy Information Administration (EIA) on Thursday reported an injection of 55 Bcf into U.S. natural gas storage for the week ended July 9, on the high side of surveys that had clustered around a build in the upper 40s Bcf. The 55 Bcf result topped the year-earlier increase of 47 Bcf and the five-year average 54 Bcf injection.
The reported 55 Bcf injection indicates the market was roughly 3 Bcf/d tighter than the five-year average when compared to degree days and normal seasonality, according to Wood Mackenzie analyst Eric Fell. This includes an estimated 14 Bcf of demand impacts from the Fourth of July holiday.
“Three of the last four weeks have appeared tight by between 3-4 Bcf/d,” Fell said in a note to clients early Friday. “These three tight weeks have corresponded with nuclear/renewable generation realizing at or below the prior five-year average, cutting against the trend of growth in nuclear/renewable generation that we have seen over time and in 23 of the 27 weeks in 2021.”
Analysts at Tudor, Pickering, Holt & Co. (TPH) pointed to weaker power generation and industrial demand during the EIA report week to explain why the latest storage figure broke from a “recent trend of tighter-than-normal injections.”
“That said, power generation has bounced back from the prior week, trending in-line with the five-year average despite significantly higher prices, with gas’ share of thermal generation hanging out in the roughly 60% range in recent days — in line with our modeling at current pricing levels,” the TPH analysts said.
Outside of power generation, TPH said Lower 48 dry gas output has come in below its 93 Bcf/d forecast, dipping to around 91 Bcf/d recently on an upstream outage on the Columbia Gas Transmission system affecting Marcellus Shale volumes.
“Industrial demand remains a counterpoint to the recent constructive volatility in supply, with around 19 Bcf/d continuing to run low versus our forecast for more than 21 Bcf/d,” the TPH analysts said.
Seasonal trends from recent years suggest industrial demand could return to normal around mid-July or early August, according to the firm.
As for the weather outlook, Bespoke Weather Services said its latest forecast extended cooler trends that have shown up throughout the week.
“There remains a lack of heat in the pattern in the East and South” that is suppressing national gas-weighted degree day totals, the firm said. “Best heat in the pattern lies from the northern Plains back into the interior West, though even in the West, any upcoming heat is nothing like what has been seen out there in previous weeks.
“The South is where we have seen little notable heat all summer, a trend that looks to continue. The East sees mostly 90s even on the warm days, not as strong as previous heat surges,” and the European model “has backed off heat potential” toward the end of the month, Bespoke added.
August crude oil futures were up 52 cents to $72.17/bbl at around 8:50 a.m. ET.
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