Natural gas futures flew higher on Monday, building on the prior week’s gains, as soaring temperatures baked much of the Lower 48 and forecasts called for heat waves to fester through July and into next month. The August Nymex contract jumped 46.3 cents day/day and settled at $7.479. September gained 45.6 cents to $7.382.
At A Glance:
- Production back below 100 Bcf/d
- Supply risks fading
- West Coast cash strong
The prompt month advanced 16% last week, including a 41.6-cent gain on Friday.
NGI’s Spot Gas National Avg. mounted further momentum of its own, rising $1.145 to $7.745. Hubs throughout the country posted strong gains.
Cash prices cruised higher last week, too. NGI’s Weekly Spot Gas National Avg. for the July 11-15 period spiked 88.5 cents to $6.730.
“The pattern remains in super-hot mode,” Bespoke Weather Services said Monday, adding its forecast calls for a few record gas-weighted degree days (GWDD) over the next two weeks. That would put the market “on pace for a July that ranks among the top three hottest months on record in terms of total GWDDs. This includes a continuation of blistering heat in places like Texas, where the hottest weather comes the next three days, bringing up the chance for at least one day of 110 in Dallas.
“Looking ahead,” the firm added, “we have little reason to think we will not continue to see above normal heat on into at least the first part of the month of August, keeping weather easily on the supportive side.”
Bears had previously seized upon the Freeport LNG outage that followed an early June fire. It cut U.S. export capacity by about 2.0 Bcf/d through at least early fall. That gas is now available for domestic consumption.
However, “all of this extra heat is really chewing away at the 200-plus Bcf given to the market’s end-of-season storage projections by the Freeport LNG debacle,” Bespoke said. “In fact, just with the forecast we see through the first few days of August, we estimate that weather has negated as much as 85 Bcf. Should heat continue this strongly into the rest of August, prices will continue to move higher, as injections will remain rather low.”
The U.S. Energy Information Administration (EIA) most recently printed an injection of 58 Bcf into natural gas storage for the week ended July 8. It lifted working gas in storage to 2,369 Bcf, yet stocks were 319 Bcf below the five-year average.
$8 Gas ‘On the Table’
Dry gas production gained 1.0 Bcf/d over the weekend to around 97 Bcf/d, EBW Analytics Group senior analyst Eli Rubin noted. That lifted output to near 2022 highs.
“If supply continues to increase, it could adjust the long-term storage outlook and severely slash shortage risk premiums for later this year,” Rubin said. For now, however, “searing heat” is driving markets higher. “The biggest risk to a weather-driven gas rally is a forecast bust…If forecasts remain very hot, however, significant near-term gains — with the potential for $8.00 natural gas ahead of next week’s expiration — are on the table.”
He also noted that record heat is expected this week in the UK and parts of Europe. This comes at a time when Russian gas deliveries to Europe are low amid annual maintenance work. Full deliveries are slated to resume July 21. But the International Energy Agency warned Russia may use the maintenance event as a ploy to make enduring supply cuts to Germany and other major European markets to retaliate against Western sanctions imposed against the Kremlin. The United State and European Union have levied several rounds of sanctions against Russia in protest of its war in Ukraine.
Against that backdrop, demand for U.S. liquefied natural gas is holding strong. Aside from the Freeport mishap, American LNG facilities are operating near capacity in July, largely to meet calls from Europe.
With both domestic and global demand strong, Rubin said “ill-defined technical resistance, swelling heat, and price-inelastic fundamentals all are suggestive of the potential for steep near-term gains.”
Cash Prices Clamber
Spot gas prices sailed higher amid robust demand across the Lower 48.
NatGasWeather said extremely hot conditions, with highs ranging from the mid-90s to well above 100 degrees, permeated the West, Texas, the Plains and swaths of the East to start the week.
“Hot high pressure will expand to rule nearly the entire U.S. midweek and beyond” for “very strong national demand,” the firm said.
Major weather models over the weekend moderated slightly in terms of total cooling degree days (CDD), but they still pointed to an “exceptionally hot” 15-day outlook, NatGasWeather said.
The latest model runs showed “the greatest number of CDD over a two-week period of the past four decades,” according to the firm.
“Longer range weather maps for early August continue to favor hotter than normal temperatures over most of the U.S. for what would keep weather sentiment solidly bullish if it were to hold, which is our expectation,” the forecaster said.
© 2022 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 | ISSN © 2577-9966 |