Natural gas futures on Wednesday advanced for a fourth straight day, probing higher from the two-and-a-half-year highs reached earlier this week, with demand robust and anticipation high ahead of the federal government’s storage report Thursday.
At A Glance:
- Forecasts call for extensive heat
- Production remains light
- Traders await EIA storage data
The August Nymex contract rose 8.3 cents day/day and settled at $3.959/MMBtu on Wednesday. September gained 8.6 cents to $3.938.
NGI’s Spot Gas National Avg. advanced 5.0 cents to $3.810 amid solid gains throughout the nation’s midsection.
Bespoke Weather Services said forecasts Wednesday again tilted even hotter for the next two weeks, adding a couple more gas-weighted degree days and extending a week-to-date daily trend that has fueled futures.
“All of the changes lie in the forecast for next week, as we continue to see models shift hotter in locations from the lower Midwest into the South, especially Texas. This is tied into the addition of some blocking in the North Atlantic, which in summer is a hotter signal in the southern U.S.,” Bespoke said.
“We see at least a few days in the medium range landing in the 100-105-degree range for highs in cities such as Dallas, marking quite the change from the pattern month-to-date,” the firm added. “Relative to normal, the strongest heat remains in the north-central U.S, where 90s will be widespread from Minneapolis to Des Moines, and even over to Chicago at times. Some 90s will be seen over in the Mid-Atlantic as well late month.”
Production this week has averaged around 91 Bcf, or roughly 2 Bcf below 2021 highs reached in June. The combination of relatively light output with accelerating demand has industry observers concerned utilities may not inject enough gas into underground storage this summer to satisfy looming winter needs for the fuel to power furnaces. The specter of this challenge is further spurring this week’s rally.
“Until we can at least match the year-to-date highs” in production, “the rally could easily continue,” Bespoke said. The firm said the prompt month “touching $4.00 looks like a given, as the market continues to digest the reality that, at least right now, there is simply not enough production to get us to a comfortable storage level heading into winter.” Unlike in years past, “there has been little material loosening in supply/demand balances despite the strong surge higher in prices.”
Analysts at Tudor, Pickering, Holt & Co. (TPH) said that, beyond the move lower in supply, pricing dynamics in recent days “have largely come down to the power generation side in our view, alongside warmer weather, as the rally in price has done little” to dampen demand “for power generation.”
The TPH team noted Wednesday that wind and solar generation have underperformed in recent days, down to just 5% of total generation at the start of this week after averaging 9% over the first half of July. Additionally, the analysts said, gas’ share of thermal generation rose to 61% early this week, following a steady average of 60% last week – “suggesting coal is struggling to meet the call as renewables lag.”
EBW Analytics Group agreed. “With opportunities for coal displacement largely exhausted, there is no clear stopping point for how high gas prices might need to rise to adequately refill storage before the injection season ends,” the EBW team said.
Ahead of Thursday’s U.S. Energy Information Administration (EIA) inventory report – covering the week ended July 16 – estimates were running above the five-year average, though analysts anticipated that storage levels would remain at a deficit to historic norms.
Reuters’ poll of analysts produced estimates spanning builds of 30 Bcf to 60 Bcf, with a median injection of 45 Bcf. A Bloomberg poll landed at a median injection of 43 Bcf, with estimates ranging from 30 Bcf to 48 Bcf.
NGI’s model predicted a 30 Bcf injection. The estimates compare with a 38 Bcf build in the year-ago period and a five-year average injection of 36 Bcf.
“Unless we see a build of 50 Bcf or more,” Bespoke said, “the overall bullish narrative will remain difficult to break.”
EIA last Thursday reported an injection of 55 Bcf for the week ended July 9. The build lifted inventories to 2,629 Bcf. But that was well below the year-earlier level of 3,172 Bcf and the five-year average of 2,818 Bcf.
Early estimates for the week ending July 23 ranged from an addition of 37 Bcf to 65 Bcf, according to Reuters polling. That compares with an injection of 27 Bcf in the similar week a year earlier and a five-year average build of 28 Bcf.
Spot Price Momentum
Next-day cash prices extended a weeklong rally as well, led higher by gains across the central United States.
Hot high pressure continues over the West into the Plains with highs of 90s and 100s this week, driving demand. Forecasters look for this to continue into next week and expand as high pressure pushes to the East.
While much of the country is expected to see lofty temperatures next week, the nation’s midsection could see the greatest intensity.
Some major markets in the south-central United States that usually see triple-digit temperatures by July, including Dallas, have yet to experience extreme heat this summer. But that is about to change, AccuWeather said.
A strong area of high pressure will strengthen in the upper levels of the atmosphere across the Plains this weekend into early next week, leading to the first heat wave of the year for parts of the southern Plains, AccuWeather meteorologists said.
The northern Plains, meanwhile, is to remain unusually hot. Bismarck, ND, for example, is averaging more than 8 degrees above normal since June 1, AccuWeather said. Bismarck “has reached 100 degrees or higher on seven days this year. This included readings of 106 degrees on June 4, 103 degrees on June 5 and 107 degrees on July 3, all of which set daily records,” AccuWeather meteorologist Ryan Adamson said in a report Wednesday.
The heat in the northern Plains “can at least partially be attributed to the ongoing extreme to exceptional drought. When there is a drought, the sun’s energy can go directly into heating the ground,” Adamson said. There has been plenty of moisture in Texas this year, though systems are expected to move out of the state soon, allowing drier and warmer conditions to take hold there, he said.Prices in Texas climbed higher Wednesday against that backdrop. El Paso Permian gained 14.5 cents to $3.770, while Carthage rose 15.5 cents to $3.655.
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