The core of the summer season went out with a bang, with temperatures on the West and East coasts soaring past decades-long record highs and sending natural gas prices screaming higher. But with a major cooldown expected beginning over the weekend, prices came crashing down by the end of the week, leaving NGI’s Weekly Spot Gas National Avg. down 2.5 cents to $4.020/MMBtu.
Nymex futures also cratered given the milder outlook. After trading near $4.20 just last week, the September contract spiraled all the way down to $3.861 by Friday.
The National Weather Service (NWS) said a “busy weather pattern” is in place through the weekend, with a slow-moving upper-level trough stretching from central Canada into the north-central United States. The Southwest Monsoon also remains active with showers and thunderstorms expected for the next several days. Within the last 30 days, portions of the Southwest have received 200-300% of average rainfall and thus are vulnerable to additional heavy rain, NWS said.
The wet forecast sent weekly cash prices in Arizona/Nevada down more than $1.00 on the week. El Paso S. Mainline/N. Baja traded in a more than $2.00 range throughout the Aug. 9-13 period, but ultimately averaged $1.365 lower week/week at $5.305.
Prices were lower throughout the West Coast. Malin spot gas fell 11.0 cents on the week to average $4.010 even as heat in the Pacific Northwest was not expected to start easing until Sunday and the interior was to remain hot.
In California, the SoCal Border Avg. was down $1.085 week/week to $5.225.
Much of the Lower 48 posted modest declines on the week, with losses limited to around a dime or so.
However, Northeast markets maintained some of the hefty gains mounted earlier in the week as temperatures soared to near the century mark. PNGTS shot up $1.480 to average $5.690 for the Aug. 9-13 week. Transco Zone 6 NY was up 23.5 cents on the week to $3.920.
Baltimore, MD, on Friday could tie its record high of 99 set in 2002, but in the wake of the approaching cold front, temperatures are forecast to be slashed by as much as 20 degrees on average, according to forecasters.
“Highs ranging from the upper 80s, 90s and even near 100 from much of this week are forecast to be swapped with highs in the 70s and 80s for the most part,” AccuWeather said.
Solidly Below $4.00
Cooler weather notwithstanding, gas futures traders appeared to be very short-sighted this week. Despite the still dire storage situation, they sent the September contract sharply lower as the near-term outlook became the focal point of trading toward the end of the Aug. 9-13 week.
NatGasWeather said models were at odds over how much warmth could return by the second half of next week. The Global Forecast System was “still very warm” for the period, but then showed temperatures retreating again Aug. 25-28. The European data, meanwhile, maintained the hotter pattern for late August.
The forecast uncertainty played a role in both Thursday’s and Friday’s trading. NatGasWeather pointed out that September futures have dropped a hefty 34 cents since highs of $4.20 earlier this month and are now “solidly back below $4.00”
The firm expects it to be another dangerous weekend to hold as there’s potential for decent weather trends over the weekend. This is partially because of a new tropical system that’s expected to strengthen over the Caribbean and could approach the U.S. mainland in the coming days.
“…Bulls have lost a bit of momentum after finding ways to rally prices on all dips the past several months,” NatGasWeather said.
However, despite the near-term weakness on the weather front, the grim storage situation is still firmly intact.
The Energy Information Administration (EIA) on Thursday said storage inventories increased by 49 Bcf, half of which came from the East region. EBW Analytics Group said the 25 Bcf build was the largest regional storage increase in six weeks.
The East still sports a 45 Bcf deficit to the five-year average, EIA data showed. However, the trend of a steadily building storage deficit for the first half of the injection season has begun to reverse lower in recent weeks, EBW analysts said.
Although the past week’s very hot regional weather may lead to a brief reversal higher, local distribution companies would almost certainly continue to inject supplies at an above-average rate during the back half of the injection season, according to the EBW team. “This firm, price-inelastic demand is likely to help support regional basis differentials, averting the vast majority of the price-induced producer shut-ins that occurred in fall 2020.”
Elsewhere across the country, Midwest inventories rose by 11 Bcf, and Mountain stocks added 1 Bcf. South Central inventories climbed by a net 3 Bcf. This included a 6 Bcf increase at nonsalt facilities and 3 Bcf withdrawal from salts, EIA said. Pacific stocks also continued to decline amid ongoing heat and drought conditions. Inventories slipped 3 Bcf for the week.
Total working gas in storage was 2,776 Bcf, 548 Bcf below year-ago levels and 178 Bcf below the five-year average, according to EIA.
Bespoke Weather Services said its models still indicate the gas market is on a path to less than 3.5 Tcf in storage at the end of the season, “which is not bearish.” However, the market may want to see some retightening before sustaining any push back higher on the pricing front.
“From a technical perspective, we did some damage to the charts and could test support down in the mid-$3.80s before all is said and done,” Bespoke said. “But overall, the net bullish picture remains intact, in our view, so it is a tricky market here in the near term.”
Big Price Drops
Spot gas prices tumbled across the Lower 48 as cooler weather started sweeping across regions scorched by heat over the past week.
AccuWeather said Portland, OR, hit 102 degrees on Wednesday, tying a record for the date last set in 1977. The high of 103 on Thursday fell one degree shy of tying the daily high record from the same year. Seattle high temperatures remained short of the century mark, but Thursday’s high temperature was only one degree away from the daily high record of 96.
Typical high temperatures for early to mid-August in the Northwest range from the upper 70s to low 80s for places such as Seattle and Portland to the mid-80s to low 90s for inland areas.
However, a shift in the weather pattern will help take heat out to the Plains, according to AccuWeather. This, combined with a dip in the jet stream, would open the door for noticeably cooler conditions early this week.
The cooler air would help bring temperatures closer to normal in the upper 70s to near 90 by Monday or Tuesday. Overnight low temperatures were also forecast to dip into the 50s, which is much more normal for mid-August, AccuWeather forecasters said.
The invasion of cooler air may also come with a brief opportunity for rain in portions of the region, according to AccuWeather. As the jet stream dips southward, some rain showers may reach portions of western Washington. While this area is in a drought, extreme and exceptional drought conditions remain farther east across the state, where rainfall is much less likely.
Nevertheless, the fading heat sent prices across the region spiraling lower on Friday. Malin spot gas fell 25.0 cents to $3.750 for gas delivery through Monday. In California, SoCal Citygate plunged $2.010 to $4.555.
In the Rockies, Northwest Sumas dropped 19.0 cents to $3.515.
Prices in the Midwest and Midcontinent were off no more than 15.0 cents day/day, while prices in East Texas fell as much as 23.5 cents.
Henry Hub was down 12.5 cents to $3.885, and Cove Point was down 26.5 cents to $3.870.
Northeast pricing hubs posted losses similar to those seen on the West Coast as severe storms were forecast to slam the region, dropping temperatures and demand alike. After major cities in the region saw temperatures soar close to 100 degrees in recent days, cooler, less humid air is expected to arrive over the weekend.
The greatest risk of severe thunderstorms with high winds and gusts up to 75 mph are forecast to extend from northern Arkansas to Vermont, western Massachusetts, western Connecticut and the New York City area, according to AccuWeather. A complicating factor in the coming days is the moisture from Fred, which is forecast to roll across the Southeast with heavy rainfall.
“The proximity of the front and tropical moisture could unleash excessive rainfall and raise the risk of flooding across the southern Appalachians, the central Appalachians and possibly areas closer to the Atlantic Coast” as the week progresses, AccuWeather said.
The soggy outlook sent PNGTS spot gas prices tumbling $2.920 to average $4.350 for the three-day gas period. Transco Zone 6 NY fell 32.5 cents to $3.570.
