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NYMEX gas futures rebound amid summer heat, near-term technical trading

Highlights

Near-term oversold conditions

Heat supporting gas prices

NYMEX front-month natural gas futures saw some upside movement ahead of the weekend, rising 41.6 cents to settle at $7.016/MMBtu on July 15.

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The strength came mainly from record hot temperatures across large portions of the US, which is forecast to continue through the balance of July. Near-term technically oversold conditions following the previous day's price weakness also contributed.

The supply/demand fundamentals are closing the work week rather quietly, with production levels rebounding toward 96 Bcf/d, following a low 94.53 Bcf/d that occurred earlier in the week, thanks to pipeline operational and maintenance issues.

Last weekend, dry gas volumes were knocking on the door of 97 Bcf/d. US imports from Canada have declined to around 6 Bcf/d amid hot July temperatures north of the US border. LNG export demand offers a small bright spot as feedgas levels approached 11.5 Bcf/d late during the week. The modest uptick has been aided by Sabine Pass feedgas levels topping 4.5 Bcf/d, while Calcasieu Pass feedgas volumes remain well above 1.5 Bcf/d. On the weather front, the next two weeks are set to bring mercury levels solidly above the five-year average.

The week's trading activity in NYMEX gas futures stemmed from a bearish weekly natural gas storage report, as the Energy Information Administration reported, which stopped a rally in NYMEX gas futures in its tracks. The NYMEX August gas contract failed to see follow-through buying after advancing as high as $6.898/MMBtu after the weekly storage report was released.

Gas storage report

The EIA showed that working gas inventory levels increased 58 Bcf for the week ended July 8, which was 3 Bcf more than the five-year average as the deficit to that benchmark declined to 319 Bcf. Despite a sweltering summer (relative to the longer-term averages), the EIA data reveals that inventory procurements in the last several weeks have outpaced or been at least equal to the five-year period during five of the previous six weeks.

Due to torrid heat across the Lone Star State during the reflective storage week, the Southcentral region was the most bullish contributor to the EIA report, with a 0 Bcf build, which was 4 Bcf less than the five-year average of a 4 Bcf injection. At the same time, the cooler Pacific region mitigated the storage data with a 9 Bcf injection, which was 5 Bcf bearish versus its regional five-year average. The Midwest, Mountain, and East all featured relatively neutral injections, which were close to their respective averages. Looking ahead at the upcoming EIA gas storage data report for the week ending July 15, early-bird estimates are for an injection ranging from as little as 45 Bcf to as much as 55 Bcf.

With less than two weeks to go before the NYMEX August gas futures contract expires, the NYMEX September contract is trading at a discount to August as the seasonal temperature calendar typically begins to moderate for many northern tier areas of the US during August. At the end of July 15, the NYMEX September contract settled at $6.926/MMBtu, up 41.5 cents on the day. Similarly, the October contract settled at $6.917/MMBtu on the day.

Premiums began to reemerge in the November contract, which rose 39 cents to settle at $6.997/MMBtu. For now, the front-month contract appears to be range-trading between $5.50/MMBtu and $7.55/MMBtu.