Natural gas futures dropped further early Friday, extending the steep losses posted a day earlier following a robust storage injection that amplified already simmering worries about fall containment.

Evening markets

The October Nymex contract, however, clawed back late in the trading day as liquefied natural gas (LNG) volumes remained strong. The prompt month settled at $2.048/MMBtu, up six-tenths of a cent day/day after plunging more than 22 cents a day earlier. November advanced 5.6 cents to $2.633.

LNG feed gas topped 7.70 Bcf Friday, according to NatGasWeather.

Thursday marked the biggest drop for the front month since the coronavirus pandemic reached the Lower 48 last spring. But Friday’s finish ensured that futures did not close below $2.000 for the first time since August.

“The market may not fully recover” from Thursday’s losses “until a clear path emerges to end the injection season at manageable inventory levels,” said Andy Weissman of EBW Analytics Group.

Spot gas prices slid Friday as weather demand abated. NGI’s Spot Gas National Avg. slid 15.5 cents to $1.440.

The U.S. Energy Information Administration (EIA) on Thursday reported an injection of 89 Bcf natural gas storage for the week ending Sept. 11. The figure eclipsed the high end of expectations found in major polls and pushed inventories up to 3,614 Bcf – well above the five-year average of 3,193 Bcf – and charted a course for storage to exceed 4.0 Tcf in October.

Weissman noted that, while demand drivers such as U.S. LNG exports and industrial energy use could further ramp up and curb containment pressure, the storage window is narrowing as fall weather settles in across portions of the Lower 48, minimizing weather-driven demand. An historically active hurricane season also threatens to usher in cooler air as well as further rounds of destructive winds and flooding that cut into energy demand.

Overall weather-driven demand, Weissman said, “is expected to fall sharply” over the weekend “and stay down for at least the next four weeks.”

Analysts said containment challenges appear most pressing in the South Central, which led all regions with a build of 33 Bcf for the latest covered week.

Tudor, Pickering, Holt & Co. (TPH) analysts estimated that South Central storage is now at 89% of total capacity, with the latest build due in part to disruptions at the Sabine Pass and Cameron LNG facilities in the wake of Hurricane Laura late last month. Sabine has since ramped back up, but Cameron remains offline with no official target date for reopening.

The TPH analysts said the latest injection report “threw gasoline on the fire” for markets.

To be sure, LNG volumes and industrial energy demand are both on the mend – with LNG exports to Asia expected to increase notably by winter to power heating needs. Further industrial demand is largely dependent on continued economic recovery driving activity and greater energy needs. The near-term outlook, however, remains clouded by an unchecked pandemic that some analysts worry could worsen during the winter months as Americans spend more time indoors and as the influenza season simultaneously intensifies.

This economic recovery is likely to be more volatile than previous ones “as it is highly dependent on the rate of improvement in the virus spread,” said Raymond James & Associates managing director Mike Gibbs.

Meanwhile, futures are not expected to get much help from weather. While heat persists in the West – blazing wildfires in California and Oregon present wildcards – much of the eastern and northern United States are beginning to cool as the official start of autumn approaches. Temperatures in the South are forecast to hover near normal. The trend is expected to continue through September and into next month, the National Weather Service forecasts, keeping temperatures overall comfortable. This would minimize cooling demand during a stretch when heating needs are likely to prove too light to drive demand.

Hurricane Sally, which struck the coasts of Alabama and Florida on Wednesday, did curb production in the Gulf of Mexico (GOM). As of mid-day Friday, approximately 16% of natural gas production in the GOM was shut-in, according to the Interior Department’s Bureau of Safety and Environmental Enforcement (BSEE). An estimated 21% of oil output also was shut-in based on 24 operator reports submitted to BSEE. 

Flooding and power outages caused by Sally’s torrential rains and strong winds, however, also curbed energy demand. And a particularly active storm season could further impact demand, as Genscape Inc. noted.

National Hurricane Center (NHC) meteorologists were tracking Tropical Depression Twenty-Two in the western Gulf of Mexico Friday. It was expected to roam through the GOM over the weekend, before approaching the Texas coast. It was projected to strengthen into a tropical storm and then potentially into a hurricane by Sunday, according to the NHC.

“This storm could prompt offshore evacuations and production drops as seen with Laura and Sally,” but it could also cause drops into power demand, Genscape analyst Dan Spangler said.

Cash Cascades

Spot gas prices tumbled Friday along with temperatures and near-term forecasts.

“An early season cool shot will sweep across the Midwest, Great Lakes and Northeast the next few days with highs of upper 50s to lower 70s,” NatGasWeather said Friday. “A second weather system will track into the Northwest with much needed showers and cooling, while the rest of the U.S. will be quite comfortable with highs of 70s and 80s besides the hotter Southwest into California,” where highs of 90s and 100s are expected.

Remnants of Sally will exit the Atlantic Coast, the forecaster said, but the new tropical system slowly gaining strength in the GOM this weekend “could bring flooding rains, power outages, and impacts to LNG facilities.”

Additionally, on Friday, the NHC named Tropical Storm Wilfred in the eastern Atlantic and, in doing so, used up its names for 2020 hurricanes. It marked only the second time on record that happened. The storm was 600 miles west of the Cabo Verde Islands, and forecasters did not expect it to pose a threat to land.  

El Paso Permian prices dropped 52 cents day/day to an average of 92.5 cents on Friday, while Chicago Citygate shed 18.5 cents to $1.460, and Panhandle Eastern fell 32.5 cents to $1.265.

In the East, Dominion Energy Cove Point lost 43.0 cents to $1.200, and Columbia Gas shed 39.0 cents to $1.075.

Out West, where prices have been volatile as historically intense wildfires rage, prices were down at every hub in California. SoCal Border Avg. sunk 36.5 cents to $1.695.

The devastating and widespread fires have forced evacuations, polluted air and cast clouds of uncertainty over daily life and energy needs, fueling the volatility. To date, the fires in California have burned more land in 2020 than the previous two years combined.