At A Glance:
- Futures rebound late
- Forecasts call for more heat
- Production dips lower
Natural gas futures tumbled early Wednesday, threatening a second day of losses, but prices rebounded in afternoon trading as new data showed production declined, exports climbed and weather forecasts pointed to strong cooling demand in the weeks ahead.
The July Nymex contract settled at $3.251/MMBtu, up 1.1 cents day/day. It marked the sixth day of gains over the past seven trading sessions. August rose 1.5 cents to $3.271.
The prompt month dropped 11 cents on Tuesday, ending a five-day rally, but analysts chalked it up to futures reaching technical resistance. It “occurred even though near-term supply/demand fundamentals were largely unchanged — a clear indicator that technical factors and machine-driven algorithmic trading were moving the market,” EBW Analytics Group said.
NGI’s Spot Gas National Avg., meanwhile, shed 6.5 cents to $3.125 on Wednesday as hubs in the West gave back some of their huge price gains earlier in the week amid scorching heat and drought conditions.
Bespoke Weather Services observed little day/day change in its latest projections Wednesday, with heat remaining a dominant theme over large swaths of the country. That is expected to translate into elevated demand for natural gas to power air conditioners.
The pattern remains “hotter-biased” even with “some cooler weather into the Midwest and East at times, as western heat, plus hotter temperatures down in Texas, is enough to offset the cooling,” Bespoke said. “We remain on pace to come close to record hot levels for June as a whole” in terms of national gas-weighted degree days, “with the expectation that the hotter bias of the pattern rolls on into July.”
Additionally, production dipped lower to around 90 Bcf, the firm noted, down from recent highs above 92 Bcf. Liquefied natural gas (LNG) levels also ticked up and held near 10 Bcf.
LNG feed gas volumes have been choppy throughout June amid seasonal maintenance work. However, following maintenance work, exports of the super-chilled fuel are expected to rise back above 11 Bcf/d – where they hovered most of the spring – because of high demand from markets across Europe and Asia.
Meanwhile, two weeks into the 2021 Atlantic hurricane season, the National Hurricane Center (NHC) on Wednesday warned of a 70% chance for a disturbance near southern Mexico to develop into a tropical cyclone later this week. The disturbance also has a 90% chance of becoming at least a tropical depression. The storm, which could be named Claudette, was expected to begin moving northward on Thursday, bringing heavy rains to parts of the northern Gulf Coast on Friday, NHC said.
Parts of Louisiana, Mississippi, and Alabama could see several inches of rain later this week. Bespoke said significant production interruptions in the U.S. offshore were unlikely, though the system could usher in cooler winds and ease a heat wave that has gripped parts of the Gulf Coast states and Texas this week.
The Electric Reliability Council of Texas (ERCOT), which operates 90% of the state’s electric grid, asked Texans this week to conserve as much energy as possible until Friday. ERCOT officials cited heat that is more intense than normal for June and forced outages at power plants.
With lofty demand so far this month, analysts are expecting a lighter-than-usual storage injection with Thursday’s Energy Information Administration (EIA) inventory report.
A Bloomberg survey showed a median estimate for a 70 Bcf injection for the week ended June 11. Responses ranged from 65 Bcf up to 76 Bcf. A Reuters poll of analysts, whose estimates ranged from a build of 64 Bcf to 76 Bcf, landed at a median injection of 73 bcf.
NGI’s model predicted a 74 Bcf injection for this week’s report. Last year EIA recorded an 86 Bcf build for the similar week, and the five-year average is an injection of 87 Bcf.
Cash Mixed
Spot gas prices lost ground for a second consecutive day in key western markets, giving back outsized gains posted on Monday as extreme heat moved into the Southwest and California deserts.
El Paso S. Mainline/N. Baja in the Southwest dropped 84.5 cents day/day to average $4.760, while in California SoCal Citygate fell 64.0 cents to $5.660 and SoCal Border Avg. shed 15.5 cents to $4.515. All three spiked more than $2.00 on Monday.
Analysts, however, anticipate western prices could rise again amid triple-digit temperatures.
“The western U.S. has been sweltering this week, with no relief in sight,” Wood Mackenzie analysts said Wednesday. They cited National Weather Service (NWS) forecasts that showed a strong upper-level ridge that could help sustain a heat wave for the majority of the western United States through the end of the trading week.
“Temperatures well into the 110s to lower 120s are forecast for the desert Southwest,” the Wood Mackenzie team noted. “Dozens (possibly hundreds) of daily record high maximum and minimum temperatures are likely to be set over the next few days in California, the Intermountain West, Desert Southwest, Rockies, and central/northern Plains.”
Texas is under siege from the heat as well.
“While not quite in the 110s, over the last three days, ERCOT market prices have been in flux due to a combination of near 100-degree heat — causing high, mid-summer-esque demand — low wind, and unexpected supply stack outages,” the Wood Mackenzie analysts added.
High temperatures in the upper-90s are expected for Texas through the end of the week, NWS data show.
On Wednesday in Texas, El Paso Permian climbed 8.5 cents to $3.035 and Transwestern gained 8.0 cents to $3.015.
Prices across most of the central U.S., however, stepped back on Wednesday after gains earlier in the week. In the Midwest, Chicago Citygate lost 10.0 cents to $3.110.
The Link LonkJune 17, 2021 at 04:33AM
https://www.naturalgasintel.com/expectations-for-strong-demand-send-july-natural-gas-futures-back-into-green/
Expectations for Strong Demand Send July Natural Gas Futures Back Into Green - Natural Gas Intelligence
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