Natural Gas Futures Find Reprieve, Escape Weeklong Losing Streak; Cash Prices Cascade - Natural Gas Intelligence

Natural Gas Futures Find Reprieve, Escape Weeklong Losing Streak; Cash Prices Cascade - Natural Gas Intelligence

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Natural Gas Futures Find Reprieve, Escape Weeklong Losing Streak; Cash Prices Cascade

Natural gas futures found their footing on Friday, ending a four-day losing streak that was fueled by a litany of bearish fundamentals. The June Nymex gas futures contract gained 3.6 cents day/day and settled at $2.137/MMBtu. July rose 2.4 cents to $2.321.

At A Glance:

- Technical resistance enters mix
- Supply/demand favors bears
- Stout storage surplus persists

Even with Friday’s bump, the prompt-month contract closed trading on Friday down 11% from the prior week’s finish.

NGI’s Spot Gas National Avg. shed 9.5 cents to $1.620 on Friday for weekend through Monday delivery.

Analysts had anticipated an eventual break in the downward pressure, citing technical resistance. ICAP Technical Analysis pegged a low threshold around the $2 level that could trigger bargain buying. With other catalysts lacking, that appeared to be the driver of upward price action on Friday.

Production held above 100 Bcf/d on Friday – near record levels – and pleasant spring weather that typically fails to generate natural gas demand dominated the Lower 48. Forecasts called for more of the same the rest of this month.

National Weather Service data showed comfortable highs from the 60s to 80s permeating most of the country over the next two weeks – save for far southern markets and western deserts that were expected to see early summer-like heat.

Long-range outlooks, while less reliable, also maintained expectations for weak weather-driven demand through the end of May and into the start of June.

“Persistent mild weather impacting residential consumption, burgeoning production,” and 33% “higher storage year-on-year have pushed the Henry Hub benchmark” down by more than half in 2023, said Rystad Energy’s Kaushal Ramesh, vice president.

The U.S. Energy Information Administration (EIA) on Thursday printed an injection of 54 Bcf natural gas into storage for the week ended April 28. The build compared bullishly with the five-year average injection of 78 Bcf for that week. Still, it increased stocks to 2,063 Bcf and put inventories well above the year-earlier level of 1,556 Bcf and the five-year average of 1,722 Bcf.

Looking ahead, early estimates for the week ending May 5 submitted to Reuters landed at an average increase of 67 Bcf. That compares with a five-year average injection of 87 Bcf. But the benign weather forecast through the rest of May is widely expected to result in plump storage increases in the following weeks that could further widen surpluses.

“Repeated gigantic weekly injections beginning in mid-May could keep momentum lower,” said EBW Analytics Group’s Eli Rubin, senior analyst.

Long term, Rubin noted, an enduring bull parade could develop. He noted the potential for a hot summer – early forecasts point to a scorching July and August – and slowing production in response to lower prices. LNG demand, bolstered by ongoing calls from both Europe and Asia, adds another bullish element. New liquefied natural gas facilities coming online next year and beyond should provide further demand, he said.

“Significant, sustainable upside for natural gas, however, remains unlikely in May,” Rubin said.

Analysts at Tudor, Pickering, Holt & Co. (TPH) said the latest EIA print punctuated an ongoing oversupply narrative rippling through U.S. markets.

“On a weather-adjusted basis, we estimate the market was roughly 4 Bcf/d oversupplied, in line with the five weeks prior,” they said.

Meanwhile, LNG feed gas demand has been slowed over the past week by seasonal maintenance, which has “picked up as expected,” the TPH analysts said. LNG volumes reached record levels in April but have dropped by more than 2 Bcf/d at points in recent days because of seasonal repair and upgrade work at Gulf Coast export plants.

The TPH team noted the potential for more hydropower this year, following a snow-laden winter, and this could offset recent coal-to-gas switching. As such, robust supplies could continue to “overwhelm” any positive near-term demand developments, they said.

Soft Spot Market

Cash prices on Friday fell for a fourth straight session, weighed down by the absence of weather-driven demand and elevated supplies.

Hubs across the country posted losses, with PNGTS in the East down 33.0 cents to $2.130 and Opal in the Rockies off 13.5 cents to $1.520.

On the maintenance front, Wood Mackenzie analysts noted that, beginning Tuesday of the coming week, Permian Highway Pipeline (PHP) and Kinder Morgan Tejas would start new maintenance events that will last through May 12 and May 17, respectively.

The maintenance work in Texas is expected to notably reduce takeaway capacity on several gas days this month. In the recent past – late in 2022 and again earlier this year – such events resulted in supply gluts that temporarily applied heavy downward pressure on Waha and El Paso Permian prices in West Texas.

On Friday, Waha fell 22.0 cents to 94.0 cents, while El Paso Permian shed 10.0 cents to $1.040.

The PHP work may also impact flows to LNG facilities. The pipeline moves gas from Waha in West Texas to Katy, outside of Houston, with connections to the Gulf Coast.

Katy prices on Friday slid 12.5 cents to $1.700.

The takeaway limits amplify the need for more Permian Basin natural gas infrastructure, analysts at East Daley Analytics said Friday.

“Build it, and producers will fill it,” the East Daley analysts said. The latest evidence comes from Energy Transfer (ET), which recently reported a strong initial performance for its new 200 MMcf/d Grey Wolf gas processing plant in the Delaware sub-basin, they said. ET placed Grey Wolf into service in December 2022, and by February of this year, the plant was already at 88% utilization.

Other expansion projects now in the works in the Permian are expected to see similar trajectories, the East Daley analysts said.

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