NYMEX prompt gas futures near $4 again as weather, storage outlook turn bullish

NYMEX prompt-month gas futures are up 45 cents, or almost 13%, over the past trading week as the July contract nears $4 again propelled by a more bullish storage outlook and hotter weather.

On June 18, the aging Henry Hub July futures contract rallied for a second consecutive day, rising about 10-15 cents from the prior settlement to an intraday high just shy of $4/MMBtu. Futures prices for August and September, which have seen similar gains over the past trading week, were also up about 10 cents on the day to highs at either side of $4.05, data from CME Group showed.

By mid-session, the prompt-month contract was holding steady around $3.95 with August and September at just over $4, even after publication of the US Energy Information Administration's latest natural gas storage report – a key market indicator that often moves futures prices.

For the week ending June 14, the EIA printed a net injection of 95 Bcf to US inventory. The estimate, which aligned closely with market analysts' expectations, also appeared largely priced in already by the NYMEX futures market, which held steady in the minutes immediately after its release.

Now, following nine consecutive weeks of bearish gas storage reports, which have added over 955 Bcf to domestic inventory, or some 235 Bcf more than average, the outlook has turned more bullish.

According to preliminary estimates, the EIA's next storage report for the week ending June 20 should show an injection aligned more closely with the five-year average build of 79 Bcf.

"The storage surplus vs. five-year average may mark a short-term peak near 165 Bcf before retreating into early July – likely furthering bullish momentum," Eli Rubin, senior energy analyst with EBW Analytics, wrote in a June 18 market note to subscribers.

"Previously, natural gas storage surpluses were expected to extend higher towards 200 Bcf over the next month. The near-term peak and probable retreat may further embolden bulls," he wrote.

Weather

The rally in NYMEX gas futures prices over the past week also comes as hotter weather looms.

According to the US National Weather Service, most states west of the Rocky Mountains and the Northern Plains will see a chance for much hotter weather in late June. By early July, the risk of hotter weather will spread west across the Northern Plains and into parts of the Pacific Northwest.

Over the upcoming weekend, temperatures in the Northeast are forecast to climb into the upper 80s to low 90s Fahrenheit – well above average, according to a forecast published by AccuWeather.

With hotter temperatures already building across the central US, domestic power burn demand has recently climbed above 41 Bcf/d for the first time this season. According to a 14-day forecast published by S&P Global Commodity Insights, US power burn will average about 42.5 Bcf/d over the next two weeks, hitting highs in the mid-43 Bcf/d range in late June.