It took some convincing, but traders have woken up to the incredible looseness still penetrating the natural gas market. After a bearish storage report, the September Nymex gas futures contract dropped 7.4 cents to $2.352. October fell 6.0 cents to $2.503.

EIA Storage Report

Spot gas prices also were mostly lower, with steep decreases continuing to be seen in California after intense heat earlier in the week. NGI’s Spot Gas National Avg. slid 5.5 cents to $2.165.

With international gas prices on the rise, the U.S. gas market has enjoyed a run over the last two weeks that lifted September futures above the $2.40 mark. However, the idea that the doors are now open for liquefied natural gas (LNG) to “roar back” to pre-Covid-19 levels is something that most of the market already had been projecting, according to Bespoke Weather Services.

Therefore, Bespoke said either the rally over-extended itself, or it was illogical to have prices as low as they had been. As is often the case, the firm said the answer likely is somewhere in the middle. The recent rally was “too much, too fast,” given some loosening of balances showing up in Bespoke’s data, which could put some containment risk back on the table if weather does not stay bullish.

The latest Energy Information Administration (EIA) drove home the notion of loose balances. The agency reported a 43 Bcf injection into storage inventories for the week ending Aug. 14, lifting total working gas in storage to 3,375 Bcf. That is 595 Bcf higher than year-ago levels and 442 Bcf above the five-year average of 2,933 Bcf.

Last year, EIA recorded a 56 Bcf build for the similar week, while the five-year average is a 44 Bcf injection.

Broken down by region, the Midwest added 24 Bcf into inventories, which was a bit higher than analysts had projected. Market observers on The Desk’s online energy platform Enelyst said gas is losing out to coal in the region, which may have contributed to the large build.

East inventories rose by 12 Bcf, the Mountain climbed 3 Bcf and the South Central added a net 4 Bcf into stocks. This included a 5 Bcf injection into nonsalt facilities and a 2 Bcf withdrawal from salts, according to EIA. The Pacific region drew 1 Bcf.

The September Nymex contract, already down about 1.5 cents at $2.412 ahead of the EIA report, barely flinched after the print hit screens. It tumbled to $2.367 in the half hour after the report, and then moved back higher before a more meaningful slide began midday.

Although right in line with market expectations, the 43 Bcf build may not reflect future balances, given the recent rise in LNG, Bespoke said. “It seems clear to us that higher prices are playing a role in impacting the balance, which is something to consider if LNG does not rip higher” or weather moves away from being bullish.

Thursday marked the deadline for cancellations from Cheniere Energy Inc. export facilities for October, which could provide some insight into how LNG demand may fare in the coming months. Tudor, Pickering, Holt & Co. analysts are currently modeling 7.5 Bcf/d of LNG feed gas demand for October, versus capacity of around 10.5 Bcf/d. This equates to 15-20 canceled cargoes from all U.S. terminals.

Meanwhile, Genscape Inc. reported that after dropping 10-15% in late March through April,  industrial gas demand is back to pre-Covid-19 levels. Sample demand in August is currently just above 2019 levels as mandates have eased and demand for industrial products has increased.

From a technical standpoint, the Schork Group said September’s retreat back below $2.389 alerts to weakness toward its $2.330 second support point. Below there, the firm looks for support at around its $2.255 third level of support.

Softening Cash

With the stubborn upper-level high that suffocated the West Coast earlier this week now weakening, less intense heat in the region paved the way for more declines in the cash market Thursday.

SoCal Border Avg. cash prices were down 71.5 cents to $3.680, while Kern Delivery tumbled $1.120 to $4.125.

In the Pacific Northwest, Northwest Sumas slipped 9.0 cents to $2.190 as slightly cooler air filtered into the region behind a Pacific cold front that is expected to keep temperatures from reaching record levels for the next couple of days.

In the producing regions, Midcontinent prices barely budged while Permian Basin prices were mixed. Waha jumped 11.5 cents to $1.765.

Prices were generally lower in the eastern half of the country, where Transco Zone 5 cash slipped 3.5 cents to $2.380. Transco-Leidy Line, in Appalachia, was down 7.0 cents to $1.120.

New England prices were stronger, with Algonquin Citygate climbing 13.5 cents to $1.445.