NYMEX August gas futures surge to kick off the second half of July

NYMEX August natural gas futures picked up July 18 from the bull run the week before, with prices surging 46.3 cents to settle at $7.479/MMBtu. Scorching summer temperatures and a barrage of short-covering primarily drove the upside action for the front month.

The temperature outlook for the remainder of July remains hot across the nation, driven by a ridge of stalled high pressure.

Production

After bumping up close to 97 Bcf/d during the weekend of July 9, dry gas volumes regressed amid pipeline maintenance and unexpected pipeline or processing plant shutdowns. Output oscillated roughly between 95 Bcf/d and 96 Bcf/d for most of last week. Dry gas volumes topped 97 Bcf/d by reaching 97.12 Bcf/d on July 17 and are now just a stone's throw from equaling the record high of 97.5 Bcf/d that last occurred in December 2021.

While the Freeport LNG export facility remains offline, LNG feedgas demand has remained above 11 Bcf/d for at least the past couple of weeks and reached 11.42 Bcf/d July 14-15, which is considered a bullish catalyst for prices. This is because when Freeport comes back online in and other LNG operations ramp back up to regular flows, overall LNG feedgas demand will likely reach 14 Bcf/d or higher. This will help underpin NYMEX gas futures prices as long as a hurricane in the Gulf of Mexico doesn't aim at the Corpus Christi or Sabine Pass LNG facilities in the weeks and months ahead.

Commitments of Traders

The Commodities Futures Trading Commission released its weekly Commitments of Traders report on July 15, highlighting fund manager long and short positions for the week ended July 12. Even though NYMEX gas futures prices have maintained some good upside momentum over the past couple of weeks, the CFTC data showed an erosion in bullish positions.

Open long positions declined by 17,581 contracts to 148,304 contracts, which was down by a hefty 165,974 contracts, or 53%, versus 2021. Open long positions have been in a persistent downtrend since mid-April, which included the period when NYMEX front-month futures rallied above $9.00/MMBtu. The 148,304 long contracts are at the lowest level since late March 2020, when NYMEX gas futures were trading under $2/MMBtu. The CFTC data showed open shorts were about unchanged for the week, down just 909 contracts to 216,056 contracts. Overall, the data showed that approximately 41% of contracts are held long, which is a bit perplexing since NYMEX gas futures prices are still trading at highs not seen since 2008.

The underlying supply/demand fundamentals and temperature forecasts are supportive of prices. However, with the long-term Freeport outage and the potential for dry gas production to reach new record levels, buyers could be hard pressed to close NYMEX gas futures prices above the upper-$7.60s/MMBtu, which is considered to be a major technical resistance area. This is particularly the case if the EIA continues to report smaller-than-projected gas storage builds, which will become more bearish when hot summer temperatures start to subside.