Natural Gas Forwards Prices Ease Lower as Extreme Heat Fades from Forecasts
With Texas heat receding to less extreme levels, and with a warm — but not sweltering — summer temperature outlook in the latest forecast maps, natural gas forwards prices pulled back during the June 22-28 trading period, NGI’s Forward Look data show.
After surging 25.8 cents higher in the week-earlier period, Henry Hub gave back 0.9 cents for the June 22-28 period as bulls took a breather. The national benchmark ended the period averaging $2.675/MMBtu for August delivery.
Losses of around a few pennies to a dime were common throughout the Lower 48 as traders assessed summer temperatures heading into July.
Maxar’s Weather Desk on Thursday updated its 11- to 15-day forecast with cooler adjustments focused in the Plains and Midwest.
“As in the previous outlook, the period is projected with an active storm track across the Eastern Half,” Maxar said. “Temperatures are held mostly in the normal category as a result. Alternatively, above normal temperatures are in the Northwest.”
Natural gas basis differentials at a few New England hubs flipped into negative territory for August delivery during the June 22-28 period. Algonquin Citygate basis tumbled 34.9 cents to finish 34.2 cents back of Henry Hub. Tenn Zone 6 200L August basis similarly fell to minus-34.8 cents, a 36.1-cent loss week/week.
Along the West Coast, prices moderated in California but continued to trade at healthy premiums as markets there juggled summer cooling demand and an ongoing regional storage deficit. Inventories in the Energy Information Administration (EIA) Pacific region rose 13 Bcf during the week ending June 23 to reach 204 Bcf, still 20.3% behind the five-year average.
PG&E Citygate dropped 27.8 cents to average $4.764 for August delivery. Farther south, SoCal Citygate tumbled 68.6 cents to $7.156.
A pair of planned maintenance events constraining imports into the Southern California Gas (SoCalGas) system via TGN-Otay Mesa at the U.S.-Mexico border are likely to have “minimal impact,” though flows through the location are sometimes called upon heading into the late summer months, according to Wood Mackenzie analyst Enrique Nieto-Burrola.
Two outages are planned, the first scheduled for this Wednesday and continuing through July 8, with the second set for Oct. 11-21, according to a notice posted to the SoCal Gas electronic bulletin board. Receipts through the TGN-Otay Mesa point will be reduced to zero for both events, the operator said.
Scheduled capacity at the TGN-Otay Mesa receipt point “has been zero since early March this year,” Nieto-Burrola said. “Border flows did reach non-zero values during January and February, with sporadic but noticeable spikes that crossed the 100,000 MMBtu line.
“Although monthly average volumes have decreased dramatically since April 2019, both the December-February and the July-October periods have remained the most active in the past several years,” the analyst added. “Therefore, even when we expect a minimal impact from the upcoming maintenance events, seasonal factors may still lead to short-term upticks” in receipts through the location this summer, “mainly to back up service to localized demand.”
Meanwhile, despite generally weaker forwards pricing throughout the Lower 48, West Texas hubs enjoyed notable strengthening in terms of basis differentials. August basis at El Paso Permian climbed 13.8 cents week/week to end the period at minus-40.3 cents. Waha August basis finished the period 41.9 cents back of Henry Hub, a 14.0-cent swing higher.
Short Squeeze Done?
After riding higher as extreme Texas heat bolstered the cooling demand outlook, Nymex futures saw some notable declines during the June 22-28 period, including a 16.0-cent swoon for the July contract in its final day of trading Wednesday.
ICAP Technical Analysis came away with a “neutral” outlook for natural gas following Wednesday’s sell-off.
Prices on Wednesday “retreated from just below the pivotal $2.870-2.880 resistance,” ICAP analyst Walter Zimmermann told clients. “That retreat suggests the short squeeze is done, at least for now. And now Natty must retreat to where the bulls are buying to get long.”
Bolstered by an EIA storage print that landed on the tighter side of expectations, the August contract climbed 3.3 cents in its first day as the prompt month Thursday to settle at $2.701.
Nymex futures appear to be more or less “fairly valued” when viewed on a seasonal basis, EBW Analytics Group analyst Eli Rubin said in a recent note.
“If production recovers higher in coming weeks as anticipated, natural gas could weaken modestly,” Rubin said. “Still, upside risks from reduced supplies, higher exports to Mexico and chances for bullish weather shifts into mid-summer cannot be ruled out. The market may also overshoot fair valuations to the upside before receding.”
Still, the analyst pointed to a “history of recent price relapses following short squeezes throughout the spring,” a situation that is “akin to the current market setup.” There’s also the prospect of “rising storage surpluses ahead.”
These factors “suggest further bullish catalysts” may be required for futures to continue climbing, according to Rubin.
Meanwhile, looking at the supply outlook, East Daley Analytics said in a recent note that its sample of volumes flowing out of the Haynesville Shale region was showing a 1.0 Bcf/d month/month decline, down to 12.6 Bcf/d on average in June.
The firm highlighted pipeline maintenance events that help account for some of the observed decline, though there remained roughly 300 Mmcf/d of reduced volumes that “we cannot easily explain.”
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