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No ‘Excitement’ Needed as May Nymex Natural Gas Contract Expires Above $2.90
Part of a broad move higher across commodities, natural gas futures recorded a third straight day of gains despite an uptick in production and moderate weather outlooks. The May Nymex gas futures contract rolled off the board at $2.925, up 5.2 cents from Tuesday’s close. June, which takes over the prompt-month position on Thursday, climbed 1.8 cents to $2.96.
Spot gas prices also remained firm as warmer weather on the East Coast appears to be driving some early-season cooling demand. NGI’s Spot Gas National Avg. rose 4.0 cents to $2.775.
Though weather is typically not a major price driver this time of year, temperature fluctuations expected in the coming days may be sparking a bit of volatility in the futures market. Bespoke Weather Services said the overall demand picture remains “tame” for the next couple of weeks. However, it is “getting more interesting in a rather subtle way” as weather models show cooling degree days running above normal during that time.
“This is not a big factor here and now, but if this trend continues, which is our expectation, it becomes much more interesting as we head through the second half of May and into June,” Bespoke said. “So, while the current pattern lacks ‘excitement,’ the continuation of the current regime beyond the next couple of weeks would shift weather over to the bullish side of the ledger.”
With export demand continuing to fire on all cylinders, weather is seen as the last piece of the puzzle to generate a meaningful, sustained bump in prices.
Liquefied natural gas (LNG) feed gas volumes continued to fluctuate on Thursday, but held near 11.5 Bcf for the third straight day.
Expectations for continued strength in U.S. LNG exports have fueled momentum along the Nymex futures curve, keeping prices afloat even when weather demand has fallen short.
On Tuesday, indications that Gazprom plans to continue to moderate deliveries to Europe in May may have factored into the bounce in futures. In addition, Equinor ASA said its Hammerfest LNG export terminal in northern Norway would remain offline until March 2022. The company initially expected to have the facility back online in October, but extensive repairs are needed after a fire at the plant last year.
With late-season cold and continued strong Asian demand, European natural gas storage inventories have averaged a startling 6.1 Bcf/d tighter than the five-year average since the beginning of the year, EBW Analytics Group pointed out.
“A very tight European supply/demand balance bolsters the injection-season outlook for U.S. LNG,” EBW said. “With LNG feed gas demand averaging above 11.5 Bcf/d month-to-date, analysts may revise LNG feed gas expectations higher, providing more incentive for natural gas to move higher this summer.”
Simmering Storage Concerns
Though early in the injection season, Lower 48 storage inventories also have struggled to make much headroom when it comes to replenishing stocks.
As of April 16, inventories stood at 1,883 Bcf, 251 Bcf below below year-ago levels and only 12 Bcf above the five-year average, according to the Energy Information Administration (EIA).
Market analysts expect the year/year deficit to expand even further when the EIA releases its next weekly storage report on Thursday.
Ahead of the report, a Bloomberg survey of nine analysts produced injections estimates ranging from 6 Bcf to 19 Bcf, with a median build of 8 Bcf. Reuters polled 18 analysts, whose estimates ranged from an injection of 6 Bcf to 28 Bcf, with a median build of 9 Bcf. A Wall Street Journal poll also produced results within that range.
NGI projected inventories would grow by 13 Bcf.
This compares with last year’s injection of 70 Bcf and the five-year average build of 67 Bcf, according to EIA.
Mobius Risk Group pointed out that demand in the prior year comparable period was impacted by governmental restrictions in numerous sectors of the economy. Without a price response to restart production growth over the past year, the cumulative effect is a “very uncertain path” to reaching “normal inventory levels” ahead of next winter.
“It is highly likely that the first two months of the 2021 injection season (April-May) will post a cumulative storage build of less than 600 Bcf, which compares to the same period in 2019 when 856 Bcf was injected and the 2020 comp when 728 Bcf was injected,” Houston-based Mobius said. “As a result, the market will approach peak cooling season with less than 2.4 Tcf in the ground, and the potential for a string of net withdrawals in late July/early August.”
While an inventory level of sub-2.4 Tcf at the end of May is not particularly noteworthy, the firm said the risk that less than 400 Bcf is added over the subsequent three months is “incredibly significant.” Unless temperatures in the southern tier of the U.S. are significantly cooler than normal in July and August — and that’s not what forecasters are planning for — the market will begin pricing closer to full-cycle production costs and further from price-elastic demand increases.
The moderate outlook for the rest of the week failed to slow additional gains in the majority of spot gas markets across the country.
NatGasWeather said national demand was forecast to be light the next couple of days amid “comfortable highs” in the mid-60s to 80s in most of the Lower 48. A minor bump in demand is expected Friday and Saturday as a weather system tracks across the Great Lakes and Northeast.
However, a second weather system over Texas and the South was forecast to keep temperatures comfortable to offset the cooler Great Lakes system, according to NatGasWeather. Warm high pressure would then build over most of the southern and eastern states late this weekend into next week, with “perfect” highs of 70s and 80s for light demand.
Though West Coast markets started to retreat from recent highs, the resilience of the Nymex futures curve spilled over into cash trading. Henry Hub next-day gas jumped 8.5 cents to $2.930, a half-cent higher than the expiring May contract.
In Texas, early-season heat lifted Texas Eastern S. Texas 11.0 cents day/day to $3.045, while in the western part of the state, Waha jumped 16.0 cents to $2.755.
Prices in the country’s midsection also strengthened, but gains were less pronounced. Defiance was up 7.0 cents to $2.730, and Northern Natural Ventura was up 7.0 cents to $2.760.
Most locations in Appalachia softened day/day, including Texas Eastern M-3, Delivery, which slipped 5.5 cents to $2.300. Prices were mixed in the Northeast, but key benchmarks were down around a nickel.
Out West, Kern River dropped a more substantial 9.0 cents to $2.875, while SoCal Citygate plunged 20.5 cents to $3.480.
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