Helped along by some additional heat in the latest forecasts, natural gas futures rebounded back above the $3 mark in early trading Friday. Roughly erasing the previous session’s losses, the July Nymex contract was up 6.7 cents to $3.025/MMBtu at around 8:50 a.m. ET.
The latest 15-day forecast from Bespoke Weather Services showed a small increase day/day in gas-weighted degree days as both the American and European models showed additional heat in the eastern third of the nation.
“We still have near-term cooling over the next few days, but once to the end of next week, cooling demand jumps back above normal and remains there through day 15, and likely beyond, given the current depiction from all the latest model guidance,” Bespoke said. “This continues to increase the odds of a hotter June, which has been our idea for a long time, though we do expect some variability mixing in at times.”
While the weather outlook did trend hotter, Bespoke viewed the move higher in prices early Friday as “a bit perplexing,” pointing to other data points suggesting the supply/demand balance is “a good deal weaker” now compared to conditions back in April and early May.
“We could not hold $3 or higher when the balance was super tight, so it would seem odd to do so here with it not as strong, but this market definitely has a bullish bias right now,” the firm said. “Perhaps weather remains strong enough to support it, but any loss of high-end heat and risks quickly increase to the downside.”
Futures tumbled in Thursday’s session as the Energy Information Administration (EIA) reported a 115 Bcf injection into U.S. storage for the week ended May 21. The reported build topped the high end of predictions prior to the report.
While “disappointing versus consensus,” the build is likely to be the only triple-digit injection of the season, according to analysts at Tudor, Pickering, Holt & Co. (TPH). For reference, last year saw five 100 Bcf-plus injections, the firm said.
“Current week power generation data suggests a 3 Bcf/d increase week/week, meaning yesterday’s print likely represents trough demand for the year, and our early modeling is pointing to a build in the mid-90s Bcf for next week’s report,” the TPH analysts said.
Power generation will be “the variable to watch” for natural gas, as there is upside for gas demand this summer if gas-to-coal switching “continues to underperform” versus modeling, according to the firm.
“Data points continue to show stronger gas burn than our switching model suggests,” the TPH analysts said. “Over the last seven days, gas has accounted for 60% of the thermal stack, compared to our regression output of 58% at current pricing, and resulting in an incremental 3 Bcf/d of gas demand.”
July crude oil futures were up 39 cents to $67.24/bbl at around 8:50 a.m. ET, while June RBOB gasoline was up about 1.1 cents to $2.1625/gal.
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May 28, 2021 at 08:07PM
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Weather Outlook Moves Hotter as Natural Gas Futures Recover Losses Early - Natural Gas Intelligence
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