Natural gas futures action remained choppy midweek, with prices falling in sympathy with a broader decline in commodities early in the session rather than in response to major swings in supply and demand. Aided by a bit of technical resistance, the September Nymex gas futures contract settled Wednesday at $4.059/MMBtu, off 3.0 cents day/day. October slid 3.2 cents to $4.071.
At A Glance:
- U.S. EIA reports an on-target 49 Bcf injection into natural gas storage inventories for the week ending Aug. 6
- Cash softens; Transco starts work in Texas
- Weather forecasts remain intact
Spot gas prices also declined across much of the country. However, big gains continued in the Northeast and parts of California, sending NGI’s Spot Gas National Avg. up another 3.0 cents to $4.145.
With the likely peak of summer underway across the United States, natural gas prices in both the futures and cash markets alike have been well supported above the $4.00 mark. However, strong winds at the beginning of this week, along with a dip in liquefied natural gas (LNG) demand, have kept cash prices from gaining much additional momentum.
The absence of further upside in the spot market has spilled into futures price action, according to EBW Analytics Group. How long the “deadlock” lasts, it said, could depend on continued shifts in weather forecasts as well as Thursday’s government storage report.
As for the latest weather outlooks, models have not deviated much in showing cooler temperatures arriving this weekend and lingering through the early part of next week. Part of the expected cooldown is to come from Tropical Storm Fred, which on the forecast track was expected to be near or over Hispaniola late Wednesday, according to the National Hurricane Center (NHC).
Fred would likely move near the Turks and Caicos Islands and the southeastern Bahamas on Thursday and near or north of the northern coast of central Cuba on Friday, the NHC said. A U.S. landfall is expected near South Florida over the weekend, likely as a tropical storm. From there, it could move along the Gulf Coast into the Southeast Monday and Tuesday.
“Fred is still expected to remain below hurricane strength but could delay LNG cargoes and weaken production slightly in the Gulf of Mexico,” said NatGasWeather.
The lower demand that could result from Fred’s arrival would provide at least some relief to a gas market that’s become increasingly jittery over supply levels ahead of winter. U.S. storage inventories are struggling to refill this injection season, as robust power burns and strong export demand have left little gas left to replenish stocks.
Last week, the Energy Information Administration (EIA) reported the smallest build of the traditional injection season, a modest 13 Bcf. Ahead of this week’s report, scheduled to be released at 10:30 a.m. ET Thursday, estimates were pointing to a larger injection in the range of 38 Bcf to 58 Bcf.
The build would compare with last year’s same week injection of 55 Bcf, according to EIA. The five-year average injection is 42 Bcf.
A Bloomberg survey of nine analysts produced a range of injection estimates from 38 Bcf to 58 Bcf, with a median build of 47 Bcf. Reuters polled 16 analysts, whose estimates were in a tighter range and had a median injection of 49 Bcf. NGI modeled a 53 Bcf build.
Bespoke Weather Services, which projected a 51 bcf build, said its estimate is higher than the five-year average but tight on a weather-adjusted basis. The firm noted that there was very low demand last week.
“It is next week’s number that will show the loosening, with risk being higher than our current 22 Bcf,” Bespoke said. “Expect choppy price action to continue in the near term.”
Spot gas prices were overwhelmingly lower on Wednesday despite intense heat continuing across the country. The decline could be because of strong wind penetration, particularly along the Gulf Coast.
Though winds were expected to die down by Friday, wind generation is currently robust, lowering the need for gas to produce electricity. Carthage next-day gas fell 10.0 cents to $3.820, and Henry Hub slipped 4.5 cents to $4.065.
Meanwhile, Transcontinental Gas Pipe Line Co. (Transco) is set to begin work Thursday on the Mainline A Pipe Replacement project. This would require a line outage in Zone 2 from Station 30 to 35A10 and is expected to last until Aug. 27.
Operating conditions from this event require Transco to restrict flow from the Wharton-Tres P M/L, Spanish Camp, Koonce #1, Cross Creek Ranch, Katy Atmos, Katy Exxon Sun, Katy Enstor, White Oak Bayou, North Milton and Bammel Exchange locations. However, depending on progress, some pipeline segments may return to service prior to the end of the event.
Wood Mackenzie analysts estimated the possible impact of about 300 MMcf/d in East Texas.
Prices across Appalachia also were lower day/day. Tenn Zone 4 200L cash was down 7.5 cents to $3.765.
Western U.S. pricing hubs were mostly lower, but Southern California prices strengthened further amid the scorching conditions and heightened need for power imports. SoCal Citygate jumped 39.0 cents to $7.480.
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