Natural gas futures gave up more ground Tuesday despite a bout of near-term heat and a drop in production, extending to four days a string of consecutive losses. The October Nymex gas futures contract shed 3.5 cents day/day and settled at $7.717/MMBtu. November fell 3.2 cents to $7.772.

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At A Glance:

  • Hurricane Ian surges toward Florida
  • Storm threatens demand, production
  • European prices rally on supply hit

NGI’s Spot Gas National Avg. on Tuesday traded sideways. It averaged $7.035, the same as a day earlier.

While heat canvassed much of the Lower 48 on Tuesday, generating another day of late-season demand, EBW Analytics Group senior analyst Eli Rubin pointed to a “relatively soft near-term fundamental outlook” for natural gas.

He said weather-driven demand is on track to decline by the start of October, and upcoming maintenance for the Cove Point LNG terminal would temporarily limit export volumes and could put further downward pressure on prices.

“Any more gas production gains into the end of the month,” Rubin added, “may further dampen sentiment.”

However, production activity pulled back some Tuesday, according to the latest estimates from Wood Mackenzie. The firm’s data showed a 1.6 Bcf/d decline in total Lower 48 production from the prior day, with output down to around 97.4 Bcf/d.

“The declines are concentrated in the Northeast, the Rockies and the Midcontinent, where there are some maintenance events underway,” Wood Mackenzie analyst Laura Munder said. “However, revisions are expected” in Wednesday’s data sample.

Production has proven choppy in September, but it has generally held near 2022 highs around 99-100 Bcf. With more robust output and some easing in summer heat in recent days, analysts are expecting a relatively stout storage print with this week’s Energy Information Administration (EIA) inventory report.

Preliminary results of a Bloomberg survey found expectations ranging from 80 Bcf to 99 Bcf, with a median of 95 Bcf.

The median expectation shows the market looking for Thursday’s print, covering the week ended Sept. 16, to easily eclipse the actual year-earlier injection of 77 Bcf and a five-year average of 81 Bcf.

It would also mark a jump up from the 77 Bcf increase posted for the week ended Sept. 9.

The latest print fell shy of the comparable week of 2021 — 78 Bcf — and the five-year average of 82 Bcf, according to EIA. It left inventories at 2,771 Bcf, well below the five-year average of 3,125 Bcf. But analysts are betting that stronger production and, gradually, fading demand to help utilities close the gap late this month and next.

Rystad Energy analyst Ade Allen, noting the deficit heading into this week’s EIA report, said a steady stream of strong injections are needed to balance the market before winter. A light injection this week or into October could disappoint and renew upward pressure on prices.

“The rollercoaster ride is far from over as winter beckons,” Allen said. “Storage levels are far below the five-year average and have shown little sign of making up ground despite winter on the horizon.”

What’s more, Allen noted, liquefied natural gas demand is expected to remain elevated through the winter as both Europe and Asia call for U.S. supplies to ensure they can navigate the depths of the coming cold. Steady U.S. exports of the super-chilled fuel provide an undercurrent of price support for Nymex futures, particularly as Europe grapples with weak pipeline deliveries from Russia amid the Kremlin’s war in Ukraine.

As analysts at The Schork Report noted, even if production holds strong, supplies may not be able to flow consistently above the 100 Bcf/d level because of limited pipeline capacity.

“With temperatures dropping, takeaway capacity strained, and no end in sight for the mayhem roiling European gas markets, volatility promises to remain high throughout winter,” the Schork analysts said.

Sideways Spot Prices

Next-day cash prices on Tuesday were mixed, with hubs in most regions posting either modest gains or slight losses.

Hubs in West Texas led gainers on the day, with El Paso Permian up 15.5 cents day/day to average $5.315 and Waha ahead 14.5 cents to $5.235.

National Weather Service (NWS) data showed heat permeating much of the nation’s midsection Tuesday, with highs in the 90s as far north as the Dakotas. High temperatures in the Northern Plains were on track to exceed historical averages for this time of year by 10-15 degrees.

Elsewhere, highs in the upper 80s covered swaths of the Midwest, generating solid cooling demand.

Highs in the 90s also peppered much of the South. Parts of Texas cooked in above-average temperatures, according to NWS data.

In the Southeast, Florida Gas Zone 3 gained 15.0 cents to $8.475. Southwest prices, however, declined. El Paso S. Mainline/N. Baja shed 13.5 cents to $7.245 and KRGT Del Pool lost 18.5 cents to $7.195.

For Texas, particularly the southernmost markets, more heat is on the way.

“A ridge of high pressure will reach its peak toward the end of this week, and it’s going to push high temperatures to the upper 90s” in Houston, “and for some inland locations, possibly 100 degrees,” Space City Weather forecaster Eric Berger said.

“This is very late in the year for such hot days,” he added. 

Milder temperatures are on the way. NWS forecasts show highs mostly in the 70s and 80s across the South next week, with peak temperatures of 60s to 80s in northern markets.

The latest forecast from Maxar’s Weather Desk underwent cooler trends for the eastern half of the Lower 48 during the six- to 10-day period, from Sunday through Sept. 29.

“The changes are in the wake of a cold front tracking through the Midwest on day six and exiting the East Coast at mid-period,” the forecaster said. “High pressure and a round of below-normal temperatures follow. At the coolest, lows are forecast in the upper 40s to low 50s in Chicago and low 50s in Philadelphia during the second half. As the East cools, a building ridge results in steady above-normal coverage from the West to Texas.”