At A Glance:
- July heat forecasts ease modestly
- Tropical Storm Elsa dampens demand
- Analysts look for light storage injection
Natural gas futures on Wednesday dropped lower, following a decline the previous day, as traders mulled weather-driven demand, stagnated liquefied natural gas (LNG) levels, and the potential storage injection with the federal government’s pending report Thursday morning.
The August Nymex contract fell 4.1 cents day/day and settled at $3.596/MMBtu. September shed 3.4 cents to $3.574.
NGI’s Spot Gas National Avg. dipped 10.5 cents lower to $3.420.
Natural gas futures declined along with global energy commodities over the past two sessions, though a shift in the weather outlook may have added to the downward trend for gas, forecasters said.
Bespoke Weather Services said its outlook updated Wednesday showed a decline in gas-weighted degree day (GWDD) expectations. The firm pointed to modestly lower projected demand over the remainder of the trading week, though it noted strong heat continues to permeate much of the Lower 48.
“At this point, the 15-day forecast as a whole is just a few GWDD over the five-year normal,” Bespoke said. “This places weather about as neutral as it can get, as the best heat in the pattern remains in the western half of the nation on a sustained basis. The East continues to see occasional strong spikes of heat, while the South, especially Texas, remains void of any anomalous heat.”
The rest of this week, Bespoke added, “is littered with rain risks as well, from Texas up into the Midwest and Northeast, which could further blunt heat.”
[Want to know how global LNG demand impacts North American fundamentals? To find out, subscribe to LNG Insight.]
Tropical Storm Elsa, meanwhile, was lashing western Florida on Wednesday with heavy rains and winds along the state’s northern Gulf Coast, according to the National Hurricane Center (NHC). The storm, carrying maximum sustained winds of 65 mph during the trading day, threatened flooding and power outages as it traveled north. It was expected to turn north-northeast and move up the coast Thursday toward Georgia and South Carolina.
The storm’s impacts were expected to prove modestly bearish for gas prices – chilly winds dampening cooling demand – as supply interruptions looked minimal. Pipelines in Elsa’s path had not posted any notices related to the storm as trading got underway Wednesday, according to Wood Mackenzie analyst Kara Ozgen.
“The current risk of production being limited is low since there is not any major production in or around the projected path and the storm missed the producing areas of the Gulf of Mexico,” Ozgen said.
Production on Wednesday held slightly above 90 Bcf, off recent highs around 92 Bcf. This was offset, however, by lower LNG volumes.
LNG feed gas levels on Wednesday hovered around 10.9 Bcf, according to NGI estimates, down a tick from the previous day. It was also below the 11-plus Bcf threshold that had effectively become the norm over the spring and early summer amid robust demand for U.S. exports from Europe and Asia.
A recent price decline in Europe may have helped curb LNG levels early this week. Still, EBW Analytics Group expects demand for U.S. LNG to hold strong this summer.
“The European natural gas market has seen the storage deficit versus the five-year average grow to 660 Bcf — up approximately 100 Bcf over the past month — while additional supplies to balance the market appear scarce,” the EBW team noted. With supplies tight and prices in Europe notably higher than in the United States, natural gas futures “would have to gain more than $5/MMBtu for economics to lead to shut-ins of U.S. LNG exports.”
Traders will next turn their attention to Thursday’s U.S. Energy Information Administration (EIA) natural gas inventory report.
Ahead of the report, covering the week ended July 2, most estimates were running notably below the five-year average for this time of year.
Injection estimates in a Bloomberg poll landed a median of 29 Bcf. Predictions ranged from 19 Bcf to 47 Bcf. Results of a Reuters survey, meanwhile, ranged from injections of 22 Bcf to 64 Bcf, with a median build of 29 Bcf.
NGI’s model predicted a 28 Bcf build, which would come in well below both the 57 Bcf year-ago injection and the five-year average build of 63 Bcf.
Spot Prices Sputter
Next-day cash prices dipped into negative territory – giving back some of the gains made a day earlier – as national demand eased.
National Weather Service data showed hot high pressure over the East Coast with highs in the 90s across several major markets, including Philadelphia and New York City. Even more intense heat scorched the West and Southwest with highs ranging from the 90s to well above 100.
Still, heavy rains over parts of Texas curbed demand while more rain loomed for Thursday. A separate weather system was expected to move into the Great Lakes and farther east Thursday, bringing comfortable temperatures in the 60s and 70s.
Spot prices were lower across the nation’s midsection against that backdrop.
In Texas, Katy fell 11.0 cents day/day to average $3.485, while Atmos Zone 3 shed 8.5 cents to $3.365.
Defiance was among the biggest decliners in the Midwest, dropping 11.5 cents to $3.305, along with Joliet, which shed 10.0 cents to $3.350.
Of course, Elsa loomed over the Southeast as well. It weakened to a tropical storm early Wednesday after briefly becoming a Category 1 hurricane late Tuesday. In addition to Florida, much of Georgia and South Carolina were under tropical storm warnings, with NWS forecasts showing up to 12 inches of rain possible in some areas.
By Thursday morning, however, the storm was forecast to weaken “down to winds under 39 mph while making headway through the Carolinas,” Wood Mackenzie’s Ozgen said. “Elsa may strengthen once again to a tropical storm on her last leg passing through Virginia by late Thursday and the remainder of the northeastern coastal states on Friday.”
In the Southeast, Cove Point declined 42.0 cents to $3.330 and Transco Zone 5 lost 17.5 cents to $3.610.Looking to next week, forecasts show highs in the 90s or above for much of the Lower 48, indicating strong national demand ahead. “This includes early peaks at much above normal levels with low to mid-100s in Salt Lake City and Sacramento and low 110s in Las Vegas,” forecasters at Maxar’s Weather Desk said Wednesday in an outlook for next week. They also expect sustained heat in the East in mid-July.
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July 08, 2021 at 04:44AM
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