NYMEX June gas futures rise to mid-$2s/MMBtu as prompt-month set to roll

With the NYMEX prompt-month calendar rolling to June later this week, gas futures prices for the first month of summer are climbing back toward the mid-$2s/MMBtu as weather forecasters predict more chilly temperatures in most states east of the Rockies through at least the first week of May.

After settling at $2.20/MMBtu in mid-April, the soon-to-be-prompt June futures contract has since gained about 20 cents, or nearly 10%, to trade at over $2.40 recently, S&P Global Commodity Insights data showed.

On April 24, trading volume for June was nearly double that of May with the former contract holding onto a nearly 20 cents contango to trade around $2.45/MMBtu, data from CME Group showed.

Rising gas futures prices for June come as the near-term outlook for the US gas market has begun to tighten.

According to the US National Weather Service, nearly the entire Midcontinent and eastern US are at a 50% or even higher risk of colder-than-normal temperatures in the seven days to May 3. In a longer-dated 14-day forecast through May 7, the Weather Service is predicting a similar outcome for US temperatures with only a slightly lower probability for colder weather.

Demand

Following a disappointing season for heating demand during this winter's coldest months, residential-commercial gas consumption picked up from mid- to late March and again more recently. Last month, the colder weather helped to rein in a massive US gas storage surplus as inventory withdrawals picked up. Over the next several weeks, stronger demand could also limit injections to a similar effect.

According to an updated forecast from S&P Global, residential-commercial gas demand should average about 21.2 Bcf/d over the next week, outpacing the five-year average by nearly 4 Bcf/d to set a new five-year high for late April. In the week following, heating demand is projected to pull back to an average of 17.3 Bcf/d while still outpacing the five-year average by about 2.5 Bcf/d.

Storage

Colder weather and stronger gas demand in the Midwest and the East Coast through early May should help tighten the US spot gas market and potentially limit the size of upcoming storage injections.

In the week ended April 21, analysts were still seen anticipating an oversized injection to US gas storage, potentially registering twice the size of the five-year average. For the week ending April 28, however, an early forecast from S&P Global shows an expected build of just 55 Bcf – about 17 Bcf smaller than the five-year average.

While the weeks from early to mid-May pose another risk for relatively weak shoulder-season demand, the NYMEX gas futures market continues to price-in a tighter US gas market from June onward.

With the Weather Service predicting another hotter-than-average summer for much of the US, and relatively lower gas prices persisting, the combination could make for another record season for gas-fired power burn. At the same time, with the addition of strong LNG export demand, the NYMEX gas futures market has good reason to prepare for tighter market conditions during this summer's peak-demand months.

For the April 28 trading, the third-quarter strip settled at an average of $2.71/MMBtu, while next winter's peak-demand months are now pricing in the upper-$3s/MMBtu, data from CME Group showed.