Natural gas futures continue to fall as market supports a potential triple-digit storage injection

Natural gas futures faltered for a second straight day on Friday as markets continued to digest a bearish storage report, looming fall weather and an averted railroad strike that could have disrupted supply chains and devastated the US economy. Nymex’s October natural gas futures contract traded at $7.764/MMBtu, down 56.0 cents a day. A day earlier, the Prompt Month fell 79.0 cents.

At a glance:

  • Prompt month falls on the second day
  • Production is holding near the 2022 high
  • Domestic supplies ready to swell

The November futures contract fell 56.1 cents to $7.811 on Friday.

NGI’s Spot Gas National Avg. lost 62.5 cents to $7.040, falling in tandem with the broader sell-off.

Hotter temperatures in the coming week, including highs in the 80s over the Midwest and East, should spur solid seasonal cooling demand at times, NatGasWeather said. However, the company also expects greater wind power generation and a shorter duration of afternoon heat spikes compared to July and August, serving as a reminder that fall weather is just around the corner.

“Overnight data sustained slight national demand from Sept. 23-30 as high pressure weakens and shifts across the west while weather systems with comfortable highs of 60-80 arrive in the eastern half of the US,” NatGasWeather said on Friday.

The company noted that the latest forecast followed Thursday’s news that negotiators had averted a strike by rail workers that could have disrupted coal supplies and boosted demand for natural gas, among broader economic repercussions. The threat of strikes had pushed futures higher on Wednesday, but after being pushed off the table, natural gas markets gave up those gains.

Meanwhile, production held near 100 Bcf/day on Friday and most of last week – within striking distance of a peak in 2022. With production picking up in September and mild temperatures likely later this month and October “Fundamentals could loosen further — creating risk of another downtrend for futures,” said Eli Rubin, senior analyst at EBW Analytics Group.

He also noted that while global demand for LNG is and is likely to remain resilient as both Europe and Asia compete for US exports ahead of the winter, the short-term ability of American exploration and production companies to meet that demand , however, for a second there will be a noticeable jolt.

The liquefied natural gas export facility at Cove Point, Maryland is scheduled for maintenance next month, which will temporarily limit shipments of the super-refrigerated fuel. This follows the idleness of the Freeport LNG terminal in Texas after a fire in June. Freeport is scheduled to resume partial operations in November, with full operations back online in March.

The combination of approaching cooler weather, higher production, and more natural gas to be consumed domestically in the event of export failures could lead to massive storage injections in the coming weeks. That would likely put downward pressure on prices, Rubin noted.

inventory gains ahead?

The Energy Information Administration (EIA) on Thursday reported an injection of 77 Bcf into US natural gas storage for the week ended September 9th. The pressure was less than the five year average of 82 Bcf but it eclipsed median expectations for a rise from the low 70’s Bcf.

The entire Lower 48 stock ended the period at 2,771 Bcf. This left inventories 11% below the five-year average, but the result indicated that supply was beginning to outstrip demand.

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Weather adjusted, the market was oversupplied by 1.4 Bcf/d during the last EIA reporting period, compared to an undersupply of 0.4 Bcf/d the previous week, according to Tudor, Pickering, Holt & Co. (TPH) estimates.

Recent data shows production growth exceeding TPH modeling due to higher volumes from the Haynesville Shale, Eagle Ford Shale and Anadarko Basin.

“We were a bit skeptical as implied flows based on EIA-reported injections suggest lighter flows, but data points for weeks are trending closer to our September forecasts in the 98.8 Bcf/d range,” the TPH analysts said about the production.

Looking ahead to the next EIA storage report, covering the week of September 16, early estimates provided to Reuters ranged from injections of 73 Bcf to 102 Bcf, with a median increase of 83 Bcf. This compares to an injection of 77 Bcf in the same week last year and a five year average of 81 Bcf.

Analysts at The Schork Report agreed with several participants from online energy platform Enelyst predicting the season’s second triple-digit storage squeeze. Schork analysts expect a rise at the high end of early polls and call for a ‘monster injection’.

If that happens and normal fall weather sets in, it could set the market on a path toward EIA’s end-of-season storage target of 3.4 Tcf — a healthy level, they said.

Cash prizes jingle

Friday’s spot natural gas prices continued to stutter for the second day amid relatively mild weather and expectations of comfortable conditions over the weekend.

Declines in the Midwest and West pushed the national average down.

Chicago Citygate fell 72.5 cents a day to average $6,940. Elsewhere in the central United States, Joliet fell 70.5 cents to $6.915 and Consumers Energy lost 65.5 cents to $7.055.

In the west, Malin lost 72.0 cents to $6,910 and SoCal Border Avg. fell $1.115 to $7.045.

NatGasWeather forecast highs of 60 to 80 for much of the country early next week.

However, the company expects hotter exceptions in the 1990s in Texas and the Southwest, and later in the week the eastern two-thirds of the Lower 48 are expected to warm above normal with highs of 70 to 90.

The west coast could see milder bouts if weather systems arrive with showers and elevations from 60 to below 80, NatGasWeather noted.

Looking ahead to the last week of September, the company added, “The western US will be mild and rainy early and then become very warm as high pressure arrives.” The eastern half of the country “will become very warm early and then comfortable” when Rain and cooler air pour into the region.

“The longer-term pattern favors temperatures near to above normal in most parts of the US in October, implying low demand for this time of year due to a combination of weak heating demand in the northern US and some late-season cooling in the southern US,” said the forecaster.

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