Oppressive heat and an anemic storage injection that fell far short of expectations powered natural gas futures higher much of Thursday, extending a rally and pushing the prompt month firmly above the $8 threshold.
At A Glance:
- EIA posts bearish 32 Bcf inventory increase
- Forecasts show enduring cooling demand
- Physical prices give up ground in Northeast
However, traders took profits late in the session and the August Nymex gas futures contract settled at $7.932, down 7.5 cents day/day. September shed 8.4 cents to $7.815.
The prompt month had soared 74.3 cents on Wednesday.
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Bulls roamed freely in cash markets across most of the country. But a pullback in Northeast prices following steep run-ups earlier this week dragged NGI’s Spot Gas National Avg. down 44.0 cents to $8.370 on Thursday.
The see-saw futures trading followed the Energy Information Administration’s (EIA) latest inventory assessment, which found utilities injected a relatively weak 32 Bcf of gas into underground storage for the week ended July 15. The print proved bearish compared to both expectations and historical norms.
Polls ahead of the EIA report had landed at median injection expectations in the mid- to high-40s Bcf.
The build compared meekly to the 50 Bcf increase in the comparable week last year and a five-year average injection of 41 Bcf.
Temperatures during the latest EIA report week were hotter than normal over much of the country, particularly across Texas and much of the South, while production was uneven. Amid sporadic maintenance projects, output has fallen short of sustaining the 97 Bcf level many analysts expected by mid-July – and that may be necessary to keep pace with demand through a scorching summer.
Forecasts on Thursday called for continued widespread heat, with high temperatures in the 90s and 100s across most of the country through July and into early August.
“Not surprised that the storage injection was lower than expectations given the intense heat that we’ve had in almost the entire Lower 48 as well as the LNG export facilities that are basically exporting at max levels,” Marex North America LLC’s Steve Blair, senior account executive, told NGI.
American liquefied natural gas facilities have churned out more than 11 Bcf/d in July – essentially operating at capacity with the exception of the offline Freeport LNG plant in Texas. A June fire at that facility cut U.S. export capacity by 2.0 Bcf for the summer – and likely longer.
Notably, Russia on Thursday resumed gas flows to Europe on the Nord Stream 1 (NS1) pipeline after summer maintenance work, at least temporarily easing worries that the Kremlin might cut off the continent. European officials had expressed worries that Russian President Vladimir Putin might use the NS1 project as the pretext for a protracted cut in flows to punish European countries for opposing the Kremlin’s war in Ukraine.
Still, shipments returned to just 40% of capacity, the level before flows were paused for 10 days of planned maintenance. With Russian gas supplies precarious, Europe is looking to U.S. exporters to fill the void at a time when excessive heat also is enveloping the continent.
The Freeport gas once destined for export is now feeding domestic needs, hampering Europe but supporting U.S. supplies.
But with the current month on pace for the third-hottest July on record – following searing temperatures and dry conditions in June – U.S. appetite for gas is nearly insatiable. Demand now threatens to eat through the added Freeport supplies, making higher production increasingly important.
Output did rise to around 97 Bcf over the past weekend and held there for a few days, marking a high for the season. But as has been the case for several weeks, maintenance projects interrupted momentum by midweek and limited output to around 95 Bcf as of Thursday.
Similar disruptions factored into the market last week, impacting supplies in the sun-soaked South Central region in particular.
Excessive heat in Texas and neighboring states during the latest EIA storage period appeared to “jump power burns and hit production at the same time,” an analyst on The Desk’s online energy platform Enelyst said. It “feels like the dead of winter” in terms of storage in that part of the country.
South Central region stocks dropped 16 Bcf, with a 15 Bcf draw from salt facilities and nonsalt inventories holding flat. EIA noted that totals sometimes do not equal the sum of components because of independent rounding.
Elsewhere, the Midwest and East led with injections of 22 Bcf and 20 Bcf, respectively, according to EIA. Pacific inventories rose by 4 Bcf, while Mountain region stocks increased by 1 Bcf.
The total 32 Bcf build lifted working gas in storage to 2,401 Bcf, though stocks were 270 Bcf lower than a year earlier and 328 Bcf below the five-year average.
Along with some profit-taking, Marex’s Blair said futures, after popping in the immediate wake of the EIA report, likely leveled off Thursday as “a function of absolute price with the market moving basically straight upwards since July 15.”
With strong demand enduring, more increases – along with volatility – may lie ahead.
“Technically, we may still have a little further to go on the upside before we start hitting into major resistance as we approach the $8.40 level,” Blair said. “And there may be some further technical resistance as we approach $8.60.”
Cash Prices Mixed
With the notable exception of the Northeast, spot gas prices sailed higher in most regions of the country amid the elevated levels of cooling demand.
With hot high pressure spanning most of the Lower 48 this week, generating highs of 90s to 100s, cooling demand is holding at high levels. National Weather Service data show lofty peak temperatures in the 90s across the nation’s midsection, with triple-digit highs in parts of Texas, the Southwest and California.
Highs in the 90s, coupled with humidity, canvass much of the East as well. Such conditions are forecast to spill into next week and early August.
Production, meanwhile, continues on a bumpy ride.
Wood Mackenzie analyst Laura Munder said estimates Thursday showed a 1.3 Bcf decline to 95.1 Bcf. “The declines are spread out across the board,” she said, with the Northeast and Texas among the most affected this week. She cited a smattering of planned and unplanned repair projects.
Notably, in a look ahead, AccuWeather meteorologist Alex Sosnowski said the Northwest is “next in line to endure an extensive heat wave. Temperatures have hovered near average since the start of June in the region, but much warmer weather will bring an end to that trend next week.”
Northwest temperatures are forecast to average 10-15 degrees above normal over a stretch of five to seven days, Sosnowski said, and “are likely to reach the highest levels of the summer so far.”On Thursday in the Northwest, Malin jumped 50.5 cents to $7.995.