Natural Gas Futures Give Back Gains as Wind Gen Said Returning to Drive Up Injection Rate - Natural Gas Intelligence

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As the natural gas market continued to mull the implications of a lower-than-expected weekly storage build, one that appeared to derive from a temporary drop in renewable generation, futures prices retreated in early trading Friday. After rallying 9.7 cents in the previous session, the November Nymex contract was down 10.4 cents to $5.583/MMBtu at around 8:45 a.m. ET.

The U.S. Energy Information Administration (EIA) on Thursday reported a net 81 Bcf injection into domestic natural gas stocks for the week ended Oct. 8. The print came in on the bullish side of surveys and slightly exceeded the five-year average 79 Bcf injection for the period.

Total Lower 48 working gas in underground storage ended the period at 3,369 Bcf, 174 Bcf (minus 4.9%) below the 3,543 Bcf five-year average, according to EIA.

“Compared to degree days and normal seasonality this week’s reported injection appears tight by a whopping 4.0 Bcf/d versus the prior five-year average,” Wood Mackenzie analyst Eric Fell said in a note to clients Friday.

The latest print stands in “stark contrast to the previous week,” representing a 37 Bcf week/week drop in the total amount of gas injected “despite only a slight increase in total degree days” for the period, Fell said, pointing to a “massive” week/week decline in nuclear and renewable generation in the power stack as the main driver of the lighter injection.

“Wind was the biggest culprit, with unusually low wind output for the week,” the analyst said. However, “the wind-driven tightness in this week’s report will be reversed next week with wind generation staging a massive rebound — we are on pace to see the largest ever week/week increase in wind generation.”

Analysts at Tudor, Pickering, Holt & Co. said Friday their preliminary modeling suggested an above-average build of around 90 Bcf for next week’s EIA report. Along with lower gas power burn coinciding with returning wind generation, the TPH analysts said they expect a roughly 1.5 Bcf/d week/week drop in industrial demand.

This will offset “much of the shift higher in residential/commercial demand (1.65 Bcf/d higher week/week) as early heating demand kicks in,” the analysts said. “With just a few weeks to go before builds shift toward draws, we model end-of-season storage at 3.55 Tcf ahead of a tightening demand picture through winter” as liquefied natural gas exports are set to see incremental gains.

In terms of the forecast outlook, Bespoke Weather Services observed a small shift in the cooler direction from the latest modeling early Friday. The upcoming pattern continued to show below-normal demand overall but with “more variability” toward the final third of October.

Bespoke said it was maintaining a “neutral” outlook on prices heading into Friday’s session given the latest EIA print and recent increases in projected weather-driven demand. However, “once all is said and done, we still feel downside risks are greater than upside risks, based on our expectation for weaker weather into at least early November.”

Nymex November crude oil futures were up 47 cents to $81.78/bbl at around 8:45 a.m. ET.

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