Natural gas futures seesawed in trading Tuesday, jumping early on signs of waning production and strong cooling demand before dropping off as the day wore on amid a broader commodity selloff. The August Nymex gas futures contract ultimately settled at $6.163/MMBtu, down 26.3 cents day/day. September fell 29.8 cents to $6.021.
At A Glance:
- Output declines in Northeast, Permian
- Stifling heat persists across country
- Cash prices continue to advance
A day earlier, the prompt month mounted a 39.2-cent rally.
NGI’s Spot Gas National Avg. on Tuesday ticked up further, coming off a 73.0-cent surge Monday. The average advanced 3.5 cents to $6.820.
Cash prices and futures early in the day were fueled by what AccuWeather described as a dangerous heat dome that spanned much of the Lower 48, delivering highs in the 90s and 100s.
Additionally, U.S. production estimates Tuesday showed a 2.8 Bcf/d decline day/day, down to around 93 Bcf/d on lower supply flowing out of the Northeast and the New Mexico portion of the Permian Basin, Wood Mackenzie Laura Munder said.
That was notably below the recent highs around 96 Bcf, keeping production far from the 97 Bcf/d level that many analysts had anticipated the market to reach this summer.
In the Northeast, declines totaling roughly 1.3 Bcf/d were spread across Ohio and Pennsylvania, Munder said. Permian New Mexico output, meanwhile, was off around 1 Bcf/d.
Munder attributed the declines to various pipeline maintenance or operational events in these regions.
The output decline followed other recent news of supply threats. Energy Transfer LP shut in 0.2 Bcf/d of capacity on the Old Ocean Pipeline system after a fire last Thursday, while officials on Saturday reported a fire at a Oneok Inc. natural gas liquids processing plant in Oklahoma.
Futures flew higher Monday and early Tuesday on sentiment that hits to supplies could offset the outage of the Freeport LNG terminal in Texas. That early June development forced the Freeport facility offline through at least the early fall. This freed up about 2.0 Bcf/d of gas once designed for export to be used domestically, easing supply concerns that had fueled a massive spring rally.
However, exceptionally intense heat so far this summer, coupled with relatively light production, put “upside pressure” on prices early this week, EBW Analytics Group noted. In Texas on Tuesday, the Electric Reliability Council of Texas (ERCOT) forecast a new peak load record, EBW added.
Continued strong global demand for U.S. liquefied natural gas so far in July added further bullish sentiment to start the week. NGI data show export volumes hovering above 11 Bcf/d this month – effectively keeping LNG facilities operating at maximum capacity. This excluded Freeport, which when fully operational accounts for 17% of U.S. LNG export capacity, according to the U.S. Energy Information Administration (EIA).
All of that noted, EIA on Tuesday also affirmed its previous expectations that American producers would ramp up output in the second half of 2022 and continue at a steady pace into next year.
In its latest Short-Term Energy Outlook, the agency said U.S. dry natural gas production in its forecast averages 96.2 Bcf/d in 2022, up 2.7 Bcf/d from 2021, boosted by gains in the back half of the year. EIA forecast average production would approach 100 Bcf/d in 2023.
What’s more, Wood Mackenzie projected that production could rebound as soon as this week as several short-term maintenance projects culminate.
With strong production potential still viable, some traders determined the early-week rally was overcooked and took profits, curbing momentum and sending futures into the red Tuesday.
A broader sell-off in commodities, including oil, also likely influenced natural gas futures on Tuesday, Bespoke Weather Services said. Rising coronavirus cases in China and other countries – and the specter of new lockdowns – fueled the commodities slump.
The drop in Henry Hub futures “appears to be tied to macro selling across all commodities,” Bespoke said. “While we would still hesitate to have much confidence in this market…our lean would be to the bullish side, given hot weather, and a supply/demand balance that appears supportive.”
The market will next look for analysts’ expectations on Wednesday for the upcoming EIA natural gas storage report. The EIA print, covering the week ended July 8, is slated for 10:30 ET Thursday, and the results of major polls generally are posted a day ahead.
Preliminary results hovered near the five-year average of 55 Bcf.
For the week ended July 1, EIA reported a storage build of 60 Bcf. That lifted inventories stocks to 2,311 Bcf, but it left them 322 Bcf below the five-year average.
Next day cash prices were flattish at the national level and mixed by region.
A fierce rally that commenced Monday in the West continued into Tuesday amid robust cooling demand, offsetting declines in parts of the East.
National Weather Service (NWS) data showed widespread heat across the Lower 48 on Tuesday, with forecasts for more of the same Wednesday. Highs were expected to range from the upper 80s in the Midwest to the high 90s in Texas to above 110 degrees in the Southwest and the California deserts.
Prices also advanced across the Southwest and much of West Texas.
El Paso Permian gained 14.5 cents to $6.500.
AccuWeather meteorologist Ryan Adamson said while parts of the East would get a reprieve from above-average temperatures later this week, the heat dome that has trapped lofty temperatures this week is expected to intensify over the West. Beneath a heat dome, Adamson said, “sinking air causes temperatures to climb, and precipitation and cloud cover tend to be limited.”
He said temperatures in Southwest markets such as Phoenix could see highs eclipse 110 each day through at least Saturday.
Heat also will remain “firmly in place” across Texas as well, Adamson said, with triple-digit highs in Austin and upper 90s in Houston.
“It may take until the upcoming weekend for temperatures to lower somewhat as the heat dome finally begins to weaken,” Adamson said.