NYMEX natural gas futures see weakness as July contract becomes front month

After a week of failed attempts by buyers seeking to close NYMEX front-month gas futures prices above $9/MMBtu, profit-takers finally emerged and sent prices tumbling to wrap up the week.

On its first day as the new front-month contract, NYMEX July 2022 gas futures saw an intraday high of $8.895/MMBtu before sellers took over. At the end of trading on May 27, the NYMEX July gas contract fell 16.8 cents to close at $8.727/MMBtu.

From the fundamental perspective, nothing had changed much in the last 24 hours to sap the bullishness out of the gas market except that NYMEX gas futures have been over-extended to the upside for several days.

LNG exports remain above 13 Bcf/d, and overall sentiment still remains bullish. However, dry gas production did manage to press above 95 Bcf/d in the latest cycle, and the early-June temperature outlook is trending less hot than the weather forecast models were indicating just a few days ago.

Stretched too far

The bearish action is likely based on the fact that prices have been stretched too far to the upside in recent days, and gas market players are obviously skittish about buying $9/MMBtu (or higher) natural gas futures when there have been four unsuccessful tries at closing prices north of this major technical resistance area. The reluctance of buyers was particularly heightened since the market is headed into a long holiday weekend where price-setting mechanisms could become even more bearish over the course of the next few days.

Further, bearish sentiment is quietly gaining traction as sellers are becoming increasingly concerned about high-priced demand destruction setting in, as US consumers are being financially hammered from every direction. Consumers are coping with aggressive ascending oil and gasoline prices, notably elevated power rates, record-high food costs, climbing interest rates, rising property taxes, a looming recession, and now the potential for a diesel fuel shortage in the US that is projected to exacerbate overall inflation this summer. The concern is that consumers will notably rein in spending at a certain point.

With NYMEX natural gas prices sitting at the highest level since 2008, which will soon be countered by the onset of new dry gas production volumes coming online, it would seem that lower prices are almost inevitable. Once dry gas production volumes are able to press over and above the December 2021 highs of 97 Bcf/d in the weeks ahead, and if the summer temperature outlook comes in seasonally average to somewhat mild for the bulk of the nation, it may set the wheels in motion for gas market bears to institute a sell-off in NYMEX front-month gas futures down to the $7/MMBtu to $6/MMBtu area.

Spot market

In the physical spot market, with the weakness in NYMEX gas futures and cooler weather-related demand in play, cash prices for the long holiday weekend were lower across the board for the flow date of May 28 through May 31. Spot prices at the Henry Hub lost a hefty 80 cents to average $8.265/MMBtu.

In the Northeast, the biggest loser was Transco, zone 5 delivered, which shed 72.5 cents at $8.57/MMBtu. In the Appalachian region, cash prices at Columbia Gas, Appalachia, went down 47 cents to average $7.605/MMBtu, while in the upper Midwest, Chicago city-gates fell 84 cents, averaging $7.81/MMBtu.

In the Rockies, Cheyenne Hub came off 80 cents, averaging $7.57/MMBtu. Further West, the most significant losses were seen at SoCal Gas city-gate, which tumbled $1.105 to average $8.565/MMBtu. On the Redwood Path, PG&E Malin lost 87.5 cents at $8.07/MMBtu.