NYMEX gas futures rebound modestly; near-term technically oversold conditions

NYMEX front-month natural gas futures saw a rebound during June 15 trading, one day after prices fell nearly 17% on the news that the Freeport LNG export terminal may be offline for three months or more. At the end of trading on June 15, the NYMEX July contract gained 23.1 cents to close at $7.42/MMBtu amid a near-term technically oversold rebound.

The upside move was somewhat expected given the magnitude of the previous day's selloff. But another run at $8.00/MMBtu or higher could be thwarted as more bearish price-setting mechanisms grow in prevalence.

One of these drivers is the decline in LNG exports. LNG feedgas demand declined to around 10.5 Bcf/d on June 15, which is still slightly over 1 Bcf/d year-over-year, but the lowest overall volumes since late February. Presently, volumes are around 3 Bcf/d below record highs. The losses stem from the Freeport LNG export facility outage and scorching heat across the South, which tends to restrict liquefaction.

Mexico cooling

While a sizeable percentage of the southern tier of the US is in the proverbial frying pan, the major weather forecast models, including the Global Forecast System and Europe's ECMWF models, are in good agreement that most of Mexico is forecast to see unusually below-average temperatures spread throughout most of the country. Should this forecast verify, it could result in a demand-dampening event of Mexican gas exports flowing south of the border. These have been recently hovering near 6.5 Bcf/d or slightly higher.

Meanwhile, market bears also point to the already percolating 2022 tropical season, which is expected to produce an above-average number of named storms. Currently, an area of weak surface and mid-level low pressure has developed over the extreme western Caribbean Sea. While this will not be a threat to any US Gulf of Mexico infrastructure, it serves as a reminder to gas market players that increase in hurricane season risk is now creeping into the market and will only become more predominate.

Weather and storage

About a month ago, the National Oceanic and Atmospheric Administration and the National Hurricane Center published a forecast for the 2022 season that calls for a 65% chance of an above-normal season, potentially producing 14-21 named storms. Of those, six to 10 are slated to become hurricanes, and three to six of those may become major hurricanes with winds of 111 mph or higher.

On June 16, all eyes will turn to the weekly gas storage inventories report as published by the US Energy Information Administration for the week ended June 10. Market players are predicting a storage build ranging from as little as 85 Bcf to as much as 95 Bcf, which will reflect an increase in domestic demand, namely from gas-fired power plants. Because the outage event at the Freeport LNG facility happened during the very end of the reflective storage week, there should be an only minimal influence on this week's gas inventory data. However, the subsequent EIA storage report, for the week ending June 17, will likely include the full impact of the roughly 2 Bcf/d declines in LNG feedgas demand.