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Technicals Drive Natural Gas Futures Rebound as Cash Rises on Lingering Heat
An early slide along the Nymex natural gas futures curve gave way to a technical bounce midday, ultimately boosting the July contract by 28.1 cents to a $6.501/MMBtu settlement. August futures climbed 26.5 cents to $6.546.
At A Glance:
- BREAKING: U.S. EIA reports 47 Bcf withdrawal from storage
- Production offsets LNG demand
- May takes over as prompt month
Spot gas prices also were mostly higher after the weekend, even as temperatures moderated from the unusually high levels seen last week. NGI’s Spot Gas National Avg. picked up 10.5 cents to reach $6.085.
With the expiration of the July futures contract looming on Tuesday, some renewed volatility hit the market as traders weighed a suite of fundamentals that were both partly bullish/partly bearish.
On the weather front, after a steamy June, outlooks showed cooler weather ahead. NatGasWeather said weather systems and associated cool fronts are forecast to sweep across the interior United States through the middle of the week. Highs in the 70s and 80s are expected across the region, including deep into Texas. There should be some regionally strong demand over the West Coast, as well as South Texas and the Southeastern coast. However, national demand is expected to hold near normal levels during this time.
By the end of the week, though, the hot upper ridge is expected to spring back, according to NatGasWeather. Heat is seen gaining in coverage over much of the country, and continuing through at least July 10.
The forecast views the pattern as “relatively bullish,” but said it would be more intimidating if not for the ongoing outage at the Freeport liquefied natural gas (LNG) facility. The outage, which leaves 2 Bcf/d of gas available to meet demand or inject into storage, is working to limit the impact of widespread above-normal temperatures.
However, NatGasWeather noted that the projected heat still should prevent storage deficits from improving through the first half of July. Therefore, it expects deficits to remain near 340 Bcf.
“As we’ve been stating, the more days with above-normal temperatures in July and August, the shorter the duration the Freeport LNG outage will have to improve supplies,” the forecaster said. “As such, while the near-term impacts to prices from Freeport going offline led to strong selling, if heat holds most days through August, deficits will still have an opportunity to increase ahead of winter if the outage doesn’t extend past 90 days.”
Production, meanwhile, remains key to price direction as the market looks for signs of sustained growth, according to Aegis Hedging Solutions LLC. Output hit a year-to-date high of 97.36 Bcf/d over the weekend, but top-day data indicated a retreat on Monday.
Aegis noted that gas-fired power generation has continued to outperform throughout the spring and early summer, but signs are emerging that industrial demand may take a step back in response to the higher price environment. Last week, the largest U.S. producer of primary aluminum, Century Aluminum Co., said it would temporarily idle its smelter in Hawesville, KY, as a direct result of skyrocketing energy costs. The facility was expected to begin the idling process on Monday.
Fundamentals aside, EBW Analytics Group said widespread trader repositioning following the massive $3.00 selloff over the past three weeks increases risks for subdued liquidity and amplified price volatility through Tuesday’s Nymex contract settlement. It noted that over the past 12 months, the Nymex front-month natural gas contract has increased in eight of 12 occurrences on options expiration day.
Breaking down recent Commodity Futures Trading Commission data, EBW said speculator net long positions slumped 15,000 for the week ending Tuesday (June 22), shedding 9,000 longs and adding 6,000 shorts. Further declines likely extended through Friday (June 24) following the Energy Information Administration’s bearish storage report.
“Short positions have neared six-month highs while longs have been squeezed out of the market amid steep price declines. If there are relatively more shorts looking to take profits and close out positions during the July contract rollover, there is a chance for prices to rise meaningfully through Tuesday’s close,” EBW senior analyst Eli Rubin said.
Quick Recovery For Cash
Spot gas prices bounced back from Friday’s lull to start the week, but gains were modest across most of the country amid mostly seasonal weather.
California was a glaring exception as extreme temperatures were expected to stick around for another day or so. The National Weather Service (NWS) said a strong upper-level ridge situated over the West Coast today would allow for widespread above-average temperatures to stretch from California and the Pacific Northwest to the Intermountain West. Away from the immediate coast and mountain ranges, highs are forecast to reach into the 90s and low 100s.
The scorching heat sent prices across the region sharply higher than Friday’s levels. SoCal Citygate next-day gas shot up $1.380 to reach $7.930, while El Paso S. Mainline/N. Baja jumped $1.045 to $7.715.
The unusually hot weather is forecast to shift eastward and into the northern/central Plains by Wednesday. NWS forecasters expect highs to top out near the century mark across parts of Nebraska and South Dakota, which equates to 15-20 degrees above average compared to normal late-June temperatures.
Elsewhere across the country, price increases top out at around 20.0 cents at the majority of locations. Cheyenne Hub climbed 13.5 cents to $5.790, and NGPL Texok edged up 13.5 cents to $5.930.
Meanwhile, Great Lakes Gas Transmission declared a second force majeure at the Iron River Compressor Station because of unexpected issues at Unit 206. As a result, operational capacity would be reduced by 261 MMcf/d until July 4. This leaves 1,425 MMcf/d of available capacity.
Also on the pipeline front, Midcontinent Express Pipeline (MEP) is planning to perform meter maintenance Tuesday and Wednesday on the interconnect delivery location with Transcontinental Gas Pipe Line Co. (Transco). This maintenance is expected to reduce interconnect delivery capacity at Trans/MEP Delchocktaw by 345,000 MMBtu/d to 900,000 MMBtu/d, thereby restricting some gas flows.
Based on the timely cycle of 1,106,232 MMBtu/d for Monday, this event would cut flows at the interconnect by 206,232 MMBtu/d, according to Wood Mackenzie. In the last 30 days, interconnect deliveries from MEP to Transco averaged 1,091,328 MMBtu/d and maxed at 1,245,000 MMBtu/d on June 14.
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