In an eventful stretch of trading influenced by shifting weather, a hurricane and historic wildfires, weekly cash prices ultimately dipped lower.
NGI’s Weekly Spot Gas National Avg. for the Sept. 14-18 period fell 15.5 cents to $1.735.
Comfortable conditions moved in during the week across much of the central and eastern United States, with high temperatures from the 60s to 80s, and cooling demand moderated as a result. Additionally, Hurricane Sally made landfall on Alabama’s coast as a Category 2 early Wednesday. The slow-moving storm was downgraded to a Category 1 as it moved along the border with Florida. But it produced torrential rains and flooding that forced evacuations and it ushered in cooler air to the Gulf of Mexico (GOM) that further curbed energy use.
Forecasters were also tracking a new tropical system late in the week that showed signs of strengthening into a powerful force in the GOM. National Hurricane Center (NHC) meteorologists said Tropical Depression Twenty-Two was expected to roam through the GOM over the weekend, before approaching the Texas coast. It was projected to strengthen into a tropical storm and then potentially into a hurricane by Sunday, according to the NHC.
Additionally, wildfires ravaged sprawling sections along the West Coast during the week, injecting volatility into spot prices at key hubs in California. Heat remained widespread in western states, but evacuations, coupled with temperatures easing some from recent record highs in California, ultimately helped to scale down cooling demand enough to keep cash prices in check for the week.
Analysts said cash prices may struggle to find momentum in coming weeks as fall conditions are typically too cool to get air conditioners cranking yet too warm to get furnaces firing. Greater economic activity – and increased energy use along with it – could fill the void. But economists caution that recovery from the coronavirus-induced pandemic continues at a gradual pace and is vulnerable to new waves of the disease.
“The economy is likely to improve further as households and businesses get used to working through the pandemic, but it won’t fully recover until the pandemic is well behind us,” said Scott Brown, Raymond James & Associates’ chief economist.
Natural gas futures started the week with back-to-back gains on Monday and Tuesday, as liquefied natural gas (LNG) levels were strong — above 7 Bcf — and production was precautionarily curtailed ahead of Sally’s arrival.
But by Wednesday, the hurricane had steered clear of the GOM’s major production facilities and moved inland, causing power outages for hundreds of thousands of households and curbing energy demand. Futures faltered.
On Thursday, the front month then endured one of its steepest declines since the onset of the coronavirus pandemic in the Lower 48.
The October Nymex contract dropped 22.5 cents day/day and settled at $2.042/MMBtu. It reached an intraday low of $2.003, as traders were caught off guard by a heftier than expected storage build that intensified imbalance concerns and worries about looming storage surpluses.
The latest U.S. Energy Information Administration (EIA) storage report showed an injection of 89 Bcf natural gas storage for the week ending Sept. 11. It exceeded the high end of expectations found in major polls and indicated that surpluses present serious containment risk this fall.
The latest injection pushed inventories up to 3,614 Bcf from 3,079 Bcf a year earlier – well above the five-year average of 3,193 Bcf.
Analysts said the hefty increase indicated that domestic industrial energy demand and LNG volumes, while improved from the depths of the pandemic late last spring and early in the summer, need to accelerate to offset waning cooling demand as temperatures decline.
“With very low weather demand on the way, we really need to see more significant tightening to avoid containment issues over the next few weeks,” Bespoke Weather Services said.
The October contract essentially held flat to finish the week, settling at $2.048/MMBtu on Friday.
“We expect the next few weeks to see similar price action on weak-demand days, especially with the next 10 days currently forecast to remain very mild,” Goldman Sachs analysts said Friday.
Spot gas prices tumbled Friday along with temperatures and near-term forecasts.
“An early season cool shot will sweep across the Midwest, Great Lakes and Northeast the next few days with highs of upper 50s to lower 70s,” NatGasWeather said Friday. “A second weather system will track into the Northwest with much needed showers and cooling, while the rest of the U.S. will be quite comfortable with highs of 70s and 80s besides the hotter Southwest into California,” where highs of 90s and 100s are expected.
Remnants of Sally will exit the Atlantic Coast, the forecaster said, but the new tropical system slowly gaining strength in the GOM over the weekend “could bring flooding rains, power outages, and impacts to LNG facilities.”
Additionally, on Friday, the NHC named Tropical Storm Wilfred in the eastern Atlantic and, in doing so, used up its names for 2020 hurricanes. It marked only the second time on record that happened. The storm was 600 miles west of the Cabo Verde Islands, and forecasters did not expect it to pose a threat to land.
Out West, where prices have been volatile as the historically intense wildfires rage, prices were down at every hub in California on Friday. SoCal Border Avg. sunk 36.5 cents to $1.695.
The devastating and widespread fires have forced evacuations, polluted air and cast clouds of uncertainty over daily life and energy needs, fueling the volatility. To date, the fires in California have burned more land in 2020 than the previous two years combined.
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