Natural Gas Price Bulls Extend Parade as August Futures Soar a Fourth Consecutive Session
Natural gas futures rose for the fourth day in a row on Wednesday, climbing higher from two-and-a-half-year highs reached earlier this week, with demand robust and expectations high ahead of the federal government’s storage report on Thursday.
At a glance:
- Forecasts require great heat
- Production remains easy
- Dealers are waiting for EIA save data
The Nymex contract rose 8.3 cents a day in August and settled at $ 3.959 / MMBtu on Wednesday. September rose 8.6 cents to $ 3.938.
NGIs Spot Gas National Avg. rose 5.0 cents to $ 3,810 amid solid gains across the country’s midfield.
Bespoke Weather Services said Wednesday’s forecasts for the next two weeks were even hotter again, adding a few more gas-weighted degree days and extending a daily trend from week to day that has fueled futures.
“All changes are in the forecast for next week as we continue to see models getting hotter in locations from the lower Midwest to the South, particularly Texas. This is linked to the additional blockage in the North Atlantic, which is a hotter signal in the southern US during the summer, ”said Bespoke.
[Want to know how global LNG demand impacts North American fundamentals? To find out, subscribe to LNG Insight.]
“We see at least a couple of days in the mid-range landing in the 100-105 degree range for highs in cities like Dallas, which is quite a change from the month-to-day pattern,” the company added. “Compared to normal, the strongest heat remains in the northern United States, where the 1990s will be widespread from Minneapolis to Des Moines and sometimes even as far as Chicago. Some 90s will also be seen in the mid-Atlantic at the end of the month. “
Production this week averaged around 91 billion cubic feet, or about 2 billion cubic feet below the June 2021 peak. The combination of relatively low output and rising demand worries industry observers that utilities may not be getting enough gas in this summer Feeding underground storage facilities in order to cover the impending winter demand for fuel for the operation of stoves. The specter of this challenge is fueling the rally this week.
“Until we can at least reach the previous year’s highs” in production, “the rally could continue without any problems,” said Bespoke. The company said the prompt month of “hitting $ 4.00 seems like a given as the market continues to dig into the reality that there is simply not enough production for now, at least, to keep us at comfortable storage levels through the winter.” bring”. In contrast to previous years, “despite the sharp rise in prices, there has hardly been any significant loosening of the supply-demand balance”.
Analysts at Tudor, Pickering, Holt & Co. (TPH) said price momentum has largely declined to the side of power generation in our view in addition to warmer weather in the wake of the rally, in our view has done little to help demand for price to dampen electricity generation.
The TPH team noted on Wednesday that wind and solar power generation had underperformed in the past few days, down to just 5% of total generation at the beginning of this week, after an average of 9% in the first half of July. In addition, the analysts said, the share of gas in thermal generation rose to 61% earlier this week, from a constant average of 60% last week – “which suggests coal is struggling to meet its reputation, because renewable energies are lagging behind ”.
EBW Analytics Group agreed. “With the possibilities for coal displacement largely exhausted, there is no clear stop to how high gas prices may have to rise in order to adequately replenish the storage facilities before the end of the injection season,” said the EBW team.
Prior to Thursday’s US Energy Information Administration (EIA) inventory report – which covered the week ending July 16 – estimates were above the five-year average, although analysts expected inventory levels to remain at a deficit from historical norms.
Reuters analyst survey found estimates that include builds from 30 Bcf to 60 Bcf with a median injection of 45 Bcf. A Bloomberg poll ended up with a median injection of 43 Bcf, with estimates ranging from 30 to 48 Bcf.
NGI’s model predicted an injection of 30 Bcf. Estimates compare to a construction of 38 billion cubic feet in the same period last year and an average injection of 36 billion cubic feet over five years.
“Unless we see a build of 50 Bcf or more,” said Bespoke, “the general bullish narrative will be hard to break.”
EIA reported an injection of 55 Bcf last Thursday for the week ending July 9th. The construction increased the stocks to 2,629 Bcf. That was well below the previous year’s figure of 3,172 billion cubic feet and the five-year average of 2,818 billion cubic feet.
Early estimates for the week ended July 23 ranged from an allowance of 37 Bcf to 65 Bcf, according to Reuters polls. That compares with an injection of 27 Bcf in the similar week a year earlier and a 5-year average of 28 Bcf.
Spot rate dynamics
The next day’s cash prices also continued to rally for weeks, led by gains in the central United States.
Hot high pressure continues this week over the west to the plains with highs of 90 and 100 and is driving demand. Forecasters expect this to continue into next week and expand as the high pressure moves east.
In the Midwest, Chicago Citygate gained 7.5 cents a day to an average of $ 3.755 while Joliet gained 8.5 cents to $ 3.745.
Hubs in the southern plains have also penetrated. OGT gained 11.0 cents to $ 3.640 and ANR SW increased 12.0 cents to $ 3.685.
While high temperatures are expected in large parts of the country next week, the central part of the country could show the greatest intensity.
Some large southern US markets that typically hit triple-digit temperatures through July, including Dallas, are yet to experience extreme heat this summer. But that’s about to change, said AccuWeather.
A strong high pressure area will intensify in the upper levels of the atmosphere over the plains from this weekend through early next week, leading to the first heat wave of the year for parts of the southern plains, AccuWeather forecasters said.
Meanwhile, the northern plains are said to remain unusually hot. Bismarck, ND, for example, has averaged more than 8 degrees above normal as of June 1, AccuWeather said. Bismarck “reached 100 degrees or more in seven days this year. These included readings of 106 degrees on June 4th, 103 degrees on June 5th and 107 degrees on July 3rd, all of which set daily records, “AccuWeather meteorologist Ryan Adamson said in a report on Wednesday.
The heat in the northern plains “can at least in part be attributed to the persistent extreme to exceptional drought. When there is a drought, the sun’s energy can go straight into warming the ground, ”said Adamson. Texas has seen a lot of moisture this year, although systems are expected to be moving out of the state soon, allowing drier and warmer conditions to prevail, he said. With that said, prices in Texas rose higher on Wednesday. El Paso Permian gained 14.5 cents to $ 3.770 while Carthage rose 15.5 cents to $ 3.655.