Selling Weighted to Front of Natural Gas Forward Curves on Weak Near-Term Fundamentals
Against a backdrop of soft near-term fundamentals, exceptionally weak spot market pricing and plummeting Nymex futures, regional natural gas forwards came under widespread bearish pressure during the March 7-13 trading period, NGI’s Forward Look data show.
For a market still threading the needle between near-term oversupply and anticipated future demand growth, selling was weighted toward the front of the curve. Henry Hub April fixed prices shed 20-plus cents week/week for April, May and June 2024 delivery, Forward Look data show.
Front month fixed prices for the benchmark dropped 27.4 cents for the period to $1.663/MMBtu.
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‘Incredibly Weak’ Physical Market
A near total absence of winter heating demand has left storage inventories brimming with excess molecules as the shoulder season nears, and this has driven physical prices to historic lows.
Day-ahead trading at Henry Hub during the March 7-13 period illustrated the bearish pressures of the near-term supply glut even as daily production volumes appear to have pulled back in recent weeks.
On Wednesday (March 13 trade date), Henry Hub spot prices dropped as low as $1.190. Spot prices at the hub previously bottomed out at $1.200 in October 2020, Daily GPI historical data show.
This comes as the Henry Hub March bidweek price of $1.610 is the lowest on record going back to at least 2014 when adjusting for inflation, according to an analysis of Bidweek historical data.
The previous Bidweek low at Henry Hub of $1.495, set in July 2020, would adjust to $1.791 based on the February 2024 Consumer Price Index, NGI calculations show.
‘Soaring Surpluses’
After briefly probing above the $2.000 mark, Nymex futures retreated throughout the March 7-13 trading period. The selling showed markets “succumbing to soaring surpluses and incredibly weak Henry Hub physical market pricing,” according to EBW Analytics Group analyst Eli Rubin.
Storage surpluses are set to climb to “staggering” levels, and “working down unmanageable excesses will define the 2024 injection season,” Rubin said.
Still, pricing along the curve illustrates the tension between current bearish dynamics and “growing bullish optimism” as the market looks ahead to later in the injection season, according to the analyst.
“At the front of the strip, the market must contend with bulging storage surpluses, meager shoulder season demand, LNG maintenance and — particularly during early April — a lack of injection behavior from local distribution companies until later in the spring,” Rubin said. However, rising demand this summer could help to “reshape a bullish narrative moving forward.”
Appalachian Basis Narrows
Meanwhile, Appalachian basis differentials continued to narrow during the March 7-13 trading period. The regional price outlook has strengthened notably following a wave of producer announcements signaling curtailments.
Eastern Gas South basis strengthened across the 2024 curve week/week, including a 12.7-cent gain for July 2024, which ended the period at minus-55.7 cents, Forward Look data show.
Differentials also narrowed for the remaining 2024 contracts at hubs like Texas Eastern M-2, 30 Receipt; Transco-Leidy Line; and Tennessee Zn 4 Marcellus.
The most recent regional operator to join the chorus of producers announcing cuts was CNX Resources Corp. The company on Tuesday said it plans to cut around 30 Bcfe from its 2024 production. CNX said it would “delay completions on three upcoming Marcellus Shale pads consisting of 11 wells to avoid bringing incremental volumes into the current oversupplied market.”
An analysis of 11 gas-weighted exploration and production (E&P) companies shows them guiding for a 13% decrease in capital spending in 2024, according to Oil & Gas Financial Analytics LLC director Tom Biracree.
These gas-weighted producers “as a group are guiding to a 1% decrease in gas output at 1.59 billion boe,” Biracree wrote in a blog post for RBN Energy LLC.
Weather Needed
Daily production estimates from Wood Mackenzie as of Thursday showed domestic output at 100.8 Bcf/d, well off the recent 30-day average of 103.0 Bcf/d and roughly flat to year-earlier levels. Recent production estimates from Bloomberg had production dipping below 100 Bcf/d.
Expanding storage surpluses have created a “quite bearish” background state for natural gas markets, though fading production volumes and the prospect of a hot summer represent “bullish undercurrents,” according to NatGasWeather.
Still, without more weather-driven demand, “the recent plunge in production won’t be able to fully cash in,” NatGasWeather said.
Signs of a cooler Lower 48 pattern for the back half of March appeared unlikely to do much to repair the damage done by mild winter weather to date.
“There’s still cooler air expected into the U.S.” from Monday through March 24, and this is “better than it’s been much of the past six weeks,” NatGasWeather said. However, the pattern remained “far from bullish due to only modest bouts of subfreezing air into the northern U.S.” and “quite nice” temperatures “most elsewhere.”
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