Natural Gas Futures Fade to End Wild Trading Week; Money shots

Natural gas futures fell for the first time in three sessions on Friday, ending an exceptionally volatile week on a sour note. The July Nymex gas futures contract lost 52.0 cents and settled at $6.944/MMBtu. August fell 53.2 cents to $6.906.

In short :

  • Freeport wildcard looms
  • Global sourcing woes worsen
  • Summer demand sizzles

NGI’s Spot Gas National Avg. fell 85.5 cents to $6,770 ahead of the June 16 long weekend.

After a huge drop last Tuesday – over $1.40 – on the word that a key liquefied natural gas (LNG) facility would remain offline all summer, futures contracts regained ground the following two days in a context of strong national and international demand. Traders, however, moved to the sidelines on Friday, consolidating their positions and avoiding any additional risk ahead of the three-day break.

The backdrop, both bullish and bearish, changed little during the trading day.

The June 8 explosion at the Freeport LNG export terminal, and the subsequent announcement that exports from the facility will be offline for at least three months, continued to weigh on the minds of market participants. . Freeport said LNG volumes from the terminal in Texas could be hampered through the end of this year. The developments should allow utilities to store gas once destined for export for next winter, easing supply issues that had plagued the market this spring.

However, Friday’s production held steady around 95 billion cubic feet – near its average for the month and about 2 billion cubic feet below what the Energy Information Administration (EIA) predicted could be. the summer average.

record heat

At the same time, Bespoke Weathers Services said, forecasts point to a record June and above-average heat for the rest of the summer. With modest production to date, supplies could still prove tight if cooling demand continues at high levels throughout the season.

“We feel the heat risk, and the supply and demand balances, even with Freeport out of service, suggest there should be little reason for prices to drop much from here,” said said Bespoke on Friday. “The risk of new highs has, of course, diminished with Freeport, but if we stay warm enough for the rest of the summer and chew much of what Freeport has given, that could change again. For now , it seems prudent to expect more turmoil, with an upward trend.

Prices have also proven volatile overseas over the past week, although they have spiked at points in Europe and Asia – key destinations for US LNG – amid growing concerns over insufficient supplies. US exporters due to the Freeport accident.

Europe, struggling with fleeting supplies from Russia, is becoming increasingly dependent on LNG from the United States and elsewhere as summer heat sets in on the continent. Inventory levels have fallen over the past week, a potentially worrying sign given that this is the time of year when utilities are pushing to pump gas into storage, according to Gas Infrastructure Europe.

Asia is also looking for more LNG, but buyers there face high prices amid competition with Europe and now South America.

Overall, summer demand could leave gas stored around the world at precarious levels ahead of next winter, stoking fears of a global supply squeeze.

Are US supplies at safe levels?

The EIA on Thursday announced an injection of 92 billion cubic feet into US gas inventories for the week ended June 10. This increase brought inventories to 2,095 billion cubic feet. Yet domestic stocks were 13% below the five-year average.

Recent power generation demand has been strong, according to analysts from Tudor, Pickering, Holt & Co., hitting record seasonal highs and topping the five-year average consumption by about 9.5 billion cubic feet per day. the last days.

Including this “robust power generation” as part of the balance equation, the company’s preliminary modeling as of Friday pointed to a build of 70 billion cubic feet for the next EIA report.

That compares on the upside with the five-year average injection of 82 billion cubic feet.

Following news of the Freeport outage, Goldman Sachs Commodities Research revised its end-October storage estimate to just over 3.5 trillion cubic feet from 3.424 billion cubic feet forecast in April.

“This remains a low level of storage relative to history,” Goldman analysts said. “As a result…if our U.S. gas balance sheets tighten more than expected in the coming months, the risk remains that U.S. natural gas prices should trigger maximum substitution toward Appalachian coal, which we believe would require an uptick. sustained gas prices at around $12/MMBtu. »

The next nine months will likely be “the tightest part of U.S. gas futures balances in years to come” amid lagging inventories and slow year-to-date production growth, analysts said. from Goldman. “Once production growth becomes more visible, which we expect in 2H2022, this will set the stage for much weaker US balances in 2023 and 2024.”

Species called inferior

After two straight advances on strong cooling demand, spot gas prices fell alongside futures on Friday.

Demand remained strong ahead of a weekend that was expected to be dangerously hot as far north as the Dakotas.

On Friday, the National Weather Service (NWS) reported widespread highs in the 80s to 90s across the central United States and hundreds in the Southwest. Major eastern markets also baked amid temperatures ranging from the mid-80s to low-90s.

Still, spot prices fell to the lower 48s as markets tried to assess the various moving parts impacting supply/demand balances. Eastern prices led the decline.

Algonquin Citygate fell $1,260 a day to an average of $6,585, while Transco-Leidy Line lost $1,050 to $6,275 and Columbia Gas fell 69.5 cents to $6,560.

Elsewhere, Henry Hub fell 55.5 cents to $7.335 and SoCal Citygate fell 73.0 cents to $6.865.

Unlike Friday’s declines, national cooling demand is expected to prove even more robust in the coming days as high pressure strengthens over the East and South, according to NWS projections.

AccuWeather said 90s highs will cook much of the country in the coming trading week.

Its meteorologists see “widespread highs in the mid to upper 90s with additional areas likely to record temperatures in the 100s,” the company said. “These forecasts represent temperatures around 15 to 25 degrees above average” in many parts of the central and eastern regions of the Lower 48.

“To make matters worse, the high humidity and sunshine will be about as intense as it gets with the summer solstice on Tuesday,” AccuWeather added. “The few days either side of the official start of summer are a time when the rays of the midday sun are as high in the sky as they have ever been at any time in the year. ‘year.”

Garland K. Long