Natural gas futures recovered on Friday along with stronger export volumes and increased expectations for national cooling demand in June. The July Nymex contract rose 2.8 cents day/day and settled at $2.986/MMBtu. August gained 2.9 cents to $3.007.
In its debut as the front month on Thursday, the July contract had dropped 6.9 cents following a bearish government inventory report. That followed a rally on Wednesday, when the June contract surged more than 7 cents before expiring at the close.
The new prompt month jumped ahead early Friday and traded above the $3.00 level throughout the morning before giving up some ground amid afternoon profit-taking ahead of the long Memorial Day weekend.
NGI’s Spot Gas National Avg. climbed 6.5 cents to $2.705. Friday trading was for gas delivered on Tuesday, June 1.
Bespoke Weather Services’ 15-day forecast as of Friday included a modest increase day/day in gas-weighted degree days, with the American and European models both showing additional heat in the eastern third of the nation.
By late in the first week of June, “cooling demand jumps back above normal and remains there through day 15, and likely beyond, given the current depiction from all the latest model guidance,” Bespoke said. “This continues to increase the odds of a hotter June, which has been our idea for a long time, though we do expect some variability mixing in at times.”
It “is uncommon to see pure weather trading be a successful strategy in summer, as opposed to winter, and the supply/demand balance is undeniably a good deal weaker than it had been for all of April and into early May,” Bespoke added, referring to the U.S. Energy Information Administration (EIA) latest storage report.
EIA reported an injection of 115 Bcf natural gas into stockpiles for the week ending May 21. The result exceeded the high end of estimates in major polls. NGI’s model called for a 107 Bcf injection. The result compared bearishly with a 105 Bcf increase in storage a year earlier and a five-year average injection of 91 Bcf.
Inventories increased to 2,215 Bcf; however, that was well below the year-earlier level of 2,596 Bcf and below the five-year average of 2,278 Bcf.
“Compared to degree days and normal seasonality,” the latest storage report “appears tight by 1 Bcf/d versus the prior five-year average,” Wood Mackenzie analyst Eric Fell said.
While “disappointing versus consensus,” the latest build is likely to be the only triple-digit injection of the season, according to analysts at Tudor, Pickering, Holt & Co. (TPH). For reference, last year saw five 100 Bcf-plus injections, the firm said.
“Current week power generation data suggests a 3 Bcf/d increase week/week,” meaning the latest EIA print “likely represents trough demand for the year, and our early modeling is pointing to a build in the mid-90s Bcf” for the next report, the TPH analysts said.
Catalysts
What’s more, weather is not the only expected catalyst for futures this summer. Liquefied natural gas (LNG) export levels, which had declined to around 10 Bcf or below in recent weeks amid maintenance work at export facilities, rebounded on Friday. LNG feed gas volumes topped 11 Bcf to close the week, NGI data showed, putting exports near record levels and signaling that, maintenance work aside, demand remains strong.
Analysts said with supplies depleted in Europe and Asia, the need for U.S. LNG on both continents is high and expected to remain so through the summer cooling season.
Commercial and industrial demand is also expected to increase this summer as pandemic-related restrictions are lifted, economic activity picks up and energy demand mounts following successful vaccination programs.
“There is so much pent-up demand right now that things could just boom this summer, and that’s of course going to benefit the energy sector,” trader Mike Matousek of U.S. Global Investors Inc. told NGI.
Economic data continued to support that thesis. On Thursday, for example, the U.S. Department of Labor said filings for jobless benefits fell to 406,000 in the week ended May 21 from 444,000 the prior week. That marked a low point since the onset of the pandemic.
“We’re on a serious upswing – at least for the summer,” Matousek said.
Cash Climbs
Spot gas prices ended an otherwise rough week on a high note Friday. Prices had either dropped into the red or traded sideways earlier in the week.
NatGasWeather said on Friday that conditions over Memorial Day weekend did not look favorable overall for demand, given seasonally comfortable temperatures and sporadic thunderstorms across the Midwest, Great Lakes and Northeast, with highs in the 60s and 70s.
Still, demand was expected to pick up early in June. Given that Friday’s trading was for gas delivered to start the new month, the outlook helped physical markets rebound.
The Friday momentum was led by jumps in the West, where heat had already arrived and cooling demand had kicked into gear. El Paso S. Mainline/N. Baja gained 32 cents day/day to average $3.060 and SoCal Border Avg. rose 18.0 cents to $3.015.
A combination of weather-driven demand and maintenance interruptions fueled a surge in prices at SoCal Citygate. Prices at the hub skyrocketed $1.225 to $4.715, leading all gainers on the day. The hub was impacted by planned work at Sempra Energy’s Southern California Gas Co.
Prices climbed across the nation’s midsection, as well, with Chicago Citygate up 8.5 cents to $2.800 and Oneok WesTex ahead 12.5 cents to $2.650.
In the Rocky Mountains, Questar gained 15.5 cents to $2.800, and in the volatile Northeast, Iroquois Zone 2 spiked 53.5 cents to $2.735.
Regionally strong cooling demand is expected in parts of the West and the South early in the coming week. By June 7, temperatures are expected to warm across most of the United States into the 80s and 90s, including 100s in the Southwest desert. NatGasWeather said the shift could drive consistent use of air conditioners across most of the Lower 48.
