Natural gas futures are volatile ahead of the month’s quick expiry, but end near $9.00
Natural gas futures fluctuated on Tuesday as traders priced an inconsistent production recovery, a mixed domestic weather outlook, lingering uncertainty in Europe and the impending expiration of the June contract. The June Nymex gas futures contract finally settled at $8.796/MMBtu, up 5.2 cents per day. He had earned 66 cents a day earlier.
In short :
- Bulls struggle for control in choppy trade
- Low production raises concerns
- June contract expires Thursday
The July contract rose nine tenths of a cent to $8.836 on Tuesday. June comes off the books as a fast month on Thursday after options expire on Wednesday. Futures contracts have generally proven to be volatile ahead of expiration this year.
NGI’s Spot Gas National Avg. advanced 52.0 cents to $8.415.
Despite the back and forth in trading on Tuesday, the bulls ultimately won as U.S. demand for liquefied natural gas (LNG) remained strong and production declined.
LNG feed gas volumes topped 13,100 cfs this week, returning to the record high of 14,100 cfs reached prior to the spring maintenance season. European demand for U.S. super-chilled fuel supplies is steady as countries on the continent scramble to sever ties with the Russian energy complex.
Domestic producers, meanwhile, have renewed their fight to prepare for summer after weeks of routine repairs and upgrades to their facilities. Production had exceeded 95 billion cubic feet in estimates to start the week – near a recent high – but fell back below that threshold on Tuesday.
Wood Mackenzie estimates showed a drop in production of more than 1.0 Bcf/d day/day early Tuesday, with production coming in at 94.7 Bcf/d. Wood Mackenzie analyst Laura Munder said the drop in production coincided with regional “maintenance or operational issues”.
Northeast volumes were down by around 600 MMcf/d, mainly from northeastern Pennsylvania. Notable declines were also seen in the Permian Basin (down about 445 MMcf/d) and the Rocky Mountains (down about 175 MMcf/d), according to Munder.
With production weak, market participants have been warning for weeks that US supplies could end the summer precariously, particularly if multiple forecasts of an unusually hot summer hold true.
Utilities pumped 89 billion cubic feet of gas into storage for the week ended May 13, bringing inventories to 1.732 billion cubic feet, the U.S. Energy Information Administration (EIA) said in its last inventory valuation.
Still, storage levels remain more than 300 billion cubic feet lower than the prior year’s total of 2,090 billion cubic feet and the five-year average of 2,042 billion cubic feet.
The shortfall relative to the averages is expected to persist. Preliminary poll results from Bloomberg showed a median expectation for an injection of 92 billion cubic feet for the week ended May 20. The EIA releases its next print on Thursday.
“Amplified volatility remains likely ahead of options expiration and final settlement,” said Eli Rubin, senior analyst at EBW Analytics Group. But recent futures advances on strong fundamentals have established “a bullish technical outlook suggesting that natural gas may soon clear $9.00.”
A case for the bears
A mixed weather outlook appeared to complicate trading early Thursday, NatGasWeather said, with mild temperatures covering much of the North this week offsetting heat elsewhere in the Lower 48.
The broader volatility in equity and commodity markets amid a pandemic rebound and recession fears may also have swayed natural gas traders early on.
The number of coronavirus cases is increasing in the United States, with more than 100,000 infections recorded daily as of mid-May, according to the United States Centers for Disease Control and Prevention. Federal health officials said the true total is likely much higher due to home testing not officially tallying.
With inflation soaring and interest rates rising, market participants are also increasingly concerned about an economic slowdown in the United States and a global recession.
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“The reality remains that the macro backdrop is fraught with uncertainty,” said Royal Bank of Canada’s Mark Dowding, chief investment officer of its BlueBay Asset Management unit.
However, NatGasWeather noted, cooling demand is king for gas markets during the summer months – and most weather signs point to robust consumption of natural gas to power air conditioners in the months ahead. The company cited widespread expectations for “a warmer than normal summer” nationwide.
“The background state is still bullish,” the forecaster said.
Cash Prize Cruise
Spot gas prices rose, with the biggest gains in the heat-soaked Southern regions and in California, where a nagging drought depleted hydroelectricity and boosted demand for natural gas.
SoCal Citygate jumped 90.0 cents day/day to average $9,580 and SoCal Border Avg. climbed 71.5 cents to $9.025.
In the South, Pine Prairie gained 47.0 cents to $8.725 and Tres Palacios rose 61.5 cents to $8.620.
NatGasWeather said there was a “cooler than normal weather system with heavy showers and thunderstorms” tracking the Plains and the east-central United States this week. The system ushered in highs from the 1950s to the 1970s across swathes of the country’s midsection.
Looking ahead, however, NatGasWeather said the southern and eastern United States will “warm up into the 80s and 90s this weekend” after brief reprieves from recent heat waves, boosting demand.
Prices in the East rebounded before these conditions. Cove Point gained 54.5 cents to $8,750 and Florida Gas Zone 3 climbed 57.0 cents to $8,955.
The Maxar weather office also predicted warmer than normal temperatures from the Midwest to the East for Sunday through June 2.
“Low pressure enters the Midcontinent early in the period, separating a cooler air mass to the west from warmer conditions farther east,” Maxar said. “…Higher and well above normal temperatures range from the Midwest to the East, including peaks near 90 degrees in Chicago early next week and across the Mid-Atlantic in the second half.”
Later, extreme weather conditions could affect production from the Gulf of Mexico, potentially adding to the price pressure expected this summer.
The National Oceanic and Atmospheric Administration’s (NOAA) Climate Prediction Center said on Tuesday that its forecasters forecast above-average hurricane activity this year. This would mark the seventh consecutive above-average hurricane season.
NOAA’s outlook for the 2022 Atlantic hurricane season, which runs from June 1 to November 30, predicted a 65% chance of an above-normal season, 25% chance of a near season. than normal and a 10% chance of a below normal season. season. The forecast also calls for a range of 14 to 21 named storms, of which 6 to 10 could become hurricanes. It is estimated that three to six could develop into major hurricanes.