Natural gas futures traders appeared to be keeping their powder dry early Thursday ahead of the latest government inventory report, with prices hovering close to even day/day. The September Nymex contract was up 0.6 cents to $2.158/MMBtu at around 8:45 a.m. ET.
Reflecting last week’s supply/demand dynamics in the face of cooler weather and impacts from Hurricane Isaias, predictions for the Energy Information Administration (EIA) report, scheduled for 10:30 a.m. ET, have been pointing to a larger-than-average injection. A Bloomberg survey of analyst estimates ranged from a build of 42 Bcf to as high as 65 Bcf, with a median of 56 Bcf. A Reuters poll had a tighter range, and a median injection of 57 Bcf, while a Wall Street Journal poll landed on a build of 56 Bcf. NGI projected a 54 Bcf injection for this week’s report, which covers the week ended Aug. 7.
This would compare with the 51 Bcf recorded by the EIA last year and the 44 Bcf five-year average.
“It was cooler than normal over the central U.S. but hotter than normal across the western and eastern U.S.” during this week’s EIA report period, forecaster NatGasWeather said. “Our algorithm predicts a build of 58 Bcf, a touch to the bearish side.”
Looking at the latest forecast outlook, the Global Forecast System and European models both trended warmer overnight for the Aug. 21-24 period after shifting cooler in their projections for this time frame in runs on Wednesday, NatGasWeather said.
“No major changes as strong national demand continues the next few days but still with cooler than normal weather systems arriving across the eastern half of the country late this weekend and next week to ease national demand,” the forecaster said. “Warmer temperatures are still favored to return across the eastern half of the U.S. Aug. 22-27, although some of the data has teased cooler trends could occur across the northern or eastern U.S. in time.”
Meanwhile, the recent surge in natural gas prices has brought coal-to-gas switching dynamics back into focus, and the higher prices at the front of the curve could prove “self-defeating” in terms of keeping storage inventories under control through the end of injections, according to analysts at Tudor, Pickering, Holt & Co. (TPH).
Over the past couple of weeks, natural gas has seen its share of thermal generation drop from 67% to 63%, coinciding with Henry Hub prices rising from $1.80 to $2.19, according to TPH estimates. This equates to a weather-neutral drop in power generation demand of about 1.2 Bcf/d, analysts said.
“As a result, this rally may prove self-defeating, as the drop in power gen may bring storage concerns back into play and necessitate a price reversal to bring back the lost power generation and curb inventory builds,” the TPH analysts said. “For context, on the revised strip (and revised power generation), our 2020 inventories peak at 4.2 Tcf, which would scrape the stipple of storage’s ceiling.
“If our forecast proves accurate, in order to clear storage, we would expect to see September/October pricing skid toward a $2.00 Henry Hub price level.”
September crude oil futures were up 6 cents to $42.73/bbl at around 8:45 a.m. ET Thursday, while September RBOB gasoline was up fractionally to $1.2472/gal.
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