The latest round of government storage data was about as bullish as it could be, but sellers came into the fold once weather models showed the upcoming heat being a little less intense.

storage

At A Glance:

  • Futures shed 12.5 cents day/day
  • Forecasts call for mild conditions
  • EIA prints 83 Bcf storage injection

The September Nymex gas futures contract settled Thursday at $4.140, off 1.8 cents day/day. October slipped 1.5 cents to $4.148.

Spot gas prices remained mostly in positive territory. However, there were a handful of locations, mostly in the West, that fell into the red. NGI’s Spot Gas National Avg. tacked on 2.5 cents to $4.145.

[Trusted Transparency: Mexican buyers and sellers are basing their natural gas prices off of NGI’s Mexico Gas Price Index. Read the analysis of our fifth survey of active players in Mexico, showcasing market-driven insights now.]

As it is every week, the Energy Information Administration’s (EIA) storage report was the primary focus of trading early in the session. Estimates ahead of the report were wide-ranging, from an injection as small as 14 Bcf to one as large as 34 Bcf. For comparison, the EIA recorded a 32 Bcf injection in the same week last year, and the five-year average stands at 30 Bcf.

The Nymex September futures contract initially popped when the EIA reported a smaller-than-expected 13 Bcf build. The prompt month hit around $4.20, but with the latest weather models backing off from some of the heat forecast for next week, sellers swept in to drag prices back down.

“The market appeared to already be pricing in risk of a bullish miss, and some cooler shift in the midday weather models brought some sellers into the fold,” said Bespoke Weather Services. “Dips likely will be bought, still, until production shows.”

Given rampant export demand, and near triple-digit temperatures across the South Central region, inventories declined at both salt and nonsalt facilities. The EIA said salt stocks fell by 19 Bcf, and nonsalt dropped by 3 Bcf.

A participant on The Desk’s online chat Enelyst noted that the 19 Bcf withdrawal in the South Central salt inventories was the largest third quarter salt draw of all time.

The nonsalt draw also surprised. “I didn’t see that draw from nonsalt coming,” said Enelyst managing director Het Shah.

Elsewhere across the country, Pacific stocks also slipped by 2 Bcf amid ongoing heat and low hydroelectric power in the region. East inventories climbed 21 Bcf, and the Midwest added 17 Bcf.

Total working gas in storage as of July 30 was 2,727 Bcf, which is 542 Bcf below year-ago levels and 185 Bcf below the five-year average, according to EIA.

Bespoke said next week’s injection is likely to be higher given cooler weather this week, but the bigger story remains the same. “There simply is not adequate supply for the market to feel comfortable with storage levels right here and now.”

Stronger winds beginning this weekend into early next week could lead to injections that are a little higher than the market is currently expecting, according to Bespoke. This would likely be a short-term bearish factor at best, though, and is not seen as a game changer. The forecaster said the market needs some loosening to get storage estimates in its model back to 3,400 Bcf for the end of October, “which is wild given how high prices currently sit.”

There are some ways for the market to get out of this bullish scenario, according to Bespoke. Production could finally make new 2021 highs, and there could be some loosening with the seasonal wind increase. “But if production stays flat or only manages a very minor gain, any hints of cold come fall into early winter could mean much higher prices yet, even from these already elevated levels.”

Mizuho Securities USA LLC’s Robert Yawger, director of Energy Futures, was a little more cautious in his price projections. In breaking down the technical aspects of the recent pricing behavior, he said it was “semi-rational” to expect natural gas to trade as high as $4.250 versus what would likely be an Relative Strength Index in “super-overbought territory of 80.0.” At that point, the last speculative player “is pretty much in the market…there is nobody left to push higher.”

Yawger noted that the net long natural gas speculative position on seven Nymex/ICE contracts was a five-month high of 508,284. “Loaded up, and probably significantly higher considering natural gas has traded higher seven of the past eight days since the last spec reporting period was over.”

The end of summer cooling season and the contango at the front of the price curve are both big concerns for additional gains, according to Yawger. The Nymex strip shifts into backwardation with the January/February contract, with January settling Thursday at a nearly 9.0-cent premium.

Moderating Gains

Spot gas prices continued to climb ahead of warm up expected in the eastern half of the country. However, after a couple of days of double-digit gains across the United States, increases on Thursday were more subdued.

In Texas, Houston Ship Channel next-day gas climbed 8.0 cents to $4.150. Panhandle Eastern picked up 6.0 cents to $3.870, as did Henry Hub, which averaged $4.180.

Appalachia pricing hubs posted stronger increases, though, as the cool, fall-like weather in the region this week was set to exit the region and make way for much warmer temperatures. NatGasWeather said the midday Global Forecast System (GFS) lost a couple cooling degree days for next week on a cooler trending system into the northern Plains. However, it was still quite hot next week over most of the United States. Widespread highs of 90s over the East and 90s to 100s over the southern states were in the forecast.

Texas Eastern M-3, Delivery spot gas prices jumped 20.5 cents to $3.950. In the Northeast, Tenn Zone 6 200L cash was up 19.5 cents to $4.005.

California prices continued to move against the pack despite ongoing heat in the forecast. The SoCal Border Avg. tumbled 80.0 cents to $5.915.

Meanwhile, local media drone footage showed that Lake Oroville, California’s second-largest reservoir, had hit a record low level. Water levels dropped to 643.5 feet above sea level, only about 25% of capacity. When the reservoir reaches full capacity, the lake’s surface stands at 900 feet above sea level.

At the current level, only three feet remained before Lake Oroville’s hydroelectric power plant may be suspended and likely require more power imports to meet demand.