Natural gas cash prices rallied along with futures through the first three sessions of the week on supply concerns and remarkably strong cooling demand by mid-May standards.
The result: NGI’s Weekly Spot Gas National Avg. for the May 16-20 period jumped 80.5 cents to $7.920.
Supported by weather-driven demand and steady calls for U.S. exports, the June Nymex futures contract climbed through much of the week. It settled at $8.083/MMBtu on Friday, down 22.5 cents on the day but up 5.5% from the previous week’s close.
Conditions were ripe for a weekly advance in natural gas prices.
Production hovered around 94 Bcf much of the past week, according to Bloomberg’s estimates. Output remained well below the 97 Bcf peak of the past winter, amplifying concerns about adequate storage supplies.
Wood Mackenzie analyst Laura Munder said recent output declines were concentrated in areas where maintenance work was active. She noted drops at the start of the week in the Northeast (down about 500 MMcf/d), North Louisiana (down about 380 MMcf/d) and the Rockies (down about 275 MMcf/d).
At the same time, strong power generation in May, driven by extreme heat in the southern United States, bolstered the demand side of the equation.
“Production needs to ramp up to meet demand, but that just doesn’t seem to be happening,” Samco Capital Markets’ Jacob Thompson, managing director, told NGI. “So price pressure could remain strong.”
Forecasters anticipated cooler air in the North but still steady weather-driven demand elsewhere in the week ahead. Lofty temperatures were predicted to fester in the Southwest, in particular, while a brief heat wave in the East was forecast to deliver highs in the upper 80s to the mid-90s to start the week on Sunday.
AccuWeather said the sweltering eastern conditions could affect close to 100 million people. “In some locations, record highs that have stood for more than 100 years could be broken,” the firm said.
Futures Post Weekly Advance
U.S. exports of liquefied natural gas (LNG) proved strong during the week, hanging above 12 Bcf and fueling futures. That marked a roughly 1 Bcf increase from earlier in the month.
Maintenance work at export facilities has hindered volumes in recent weeks. But such work is unwinding and export levels are widely expected to ramp back up to record levels around 14 Bcf this summer to meet elevated demand from Europe.
Russian deliveries of natural gas to Europe are projected to decline notably this year as countries across the continent endeavor to trim their reliance on Kremlin-backed supplies. Europe is working to cut ties with Russia in protest of the war in Ukraine, and it is calling for U.S. LNG to help fill the void.
Both U.S. exporters and government officials, in turn, profess commitment to elevate activity in support of Europe.
“The United States is committed to working with Europe…to meet your energy needs, while also breaking dependence on Russian energy,” U.S. Treasury Secretary Janet Yellen said in a recent speech. “This includes working with other partners to increase export volumes of LNG to Europe” even if it “blunts some of our immediate climate goals.”
The export activity in concert with domestic cooling demand and still-modest production bolsters bullish market sentiment, said Bespoke Weather Services.
“We still suspect we will see new highs in prices over the next few weeks, with the only way to avoid this being if production can make, and sustain, some significant gains from current levels,” Bespoke said.
Absent output gains, the firm added, U.S. storage supplies could remain under pressure through the summer.
Utilities injected 89 Bcf of gas into storage for the week ended May 13, the U.S. Energy Information Administration (EIA) reported Thursday. The result was in line with expectations and the five-year average, but it left inventories lean for this time of year.
The latest increase lifted stocks to 1,732 Bcf. At that level, however, storage levels were well below the year-earlier total of 2,090 Bcf and the five-year average of 2,042 Bcf.
Friday Cash Prices Mixed
NatGasWeather said near-term weather patterns supported natural gas demand in the physical markets, but prices had climbed too high, too fast early in the week to sustain. Spot prices had surged 80 cents Monday through Wednesday, and the national average gave back some of those gains over the final two sessions of the week.
NGI’s Spot Gas National Avg. fell 13.5 cents on Friday for weekend through Monday delivery to $7.805.
Still, temperatures in Texas and surrounding states were hot Friday and expected to remain so through the weekend, with highs of 90s to lower 100s for “strong early season cooling demand,” NatGasWeather said. What’s more, the expected weekend expansion of that heat to the East Coast fueled demand in major population centers, from New York City to Philadelphia.
Moving into the week ahead, however, milder conditions in northern markets may provide some offset, NatGasWeather added.
“Upstream over the Mountain West and Midwest, a cooler than normal weather system is sweeping through with showers and cool highs of 40s to 70s,” the forecaster said. It also noted that the eastern heat is projected to taper substantially early in the coming trading week.
Farther out, though, heat is expected to dominate southern and eastern swaths of the Lower 48 late in May and at the start of June, with highs ranging from the upper 80s to the 100s, NatGasWeather said.
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