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June natural gas posts gains ahead of contract expiration

After extending 2.5 cents lower on May 25 to settle at $3.184/MMBtu, NYMEX June natural gas futures climbed overnight ahead of the Friday, May 26, open amid technical buying and short covering leading up to the contract's roll off the board at the close of business. At 7:05 a.m. ET (1105 GMT), the contract was 1.6 cents higher at $3.200/MMBtu.

June natural gas has notched a cumulative loss of 14.6 cents in three consecutive days from May 23 through May 25, but buying at lows is beginning to drive upside momentum supported by stronger longer-range weather-related demand expectations that could keep a lid on the pace of storage-building.

Total working gas stocks currently sit at 2,444 Bcf, or 371 Bcf below the year-ago level and 241 Bcf above the five-year average of 2,203 Bcf, after the U.S. Energy Information Administration detailed a net 75-Bcf injection to stocks for the week ended May 19 that was above the full range of estimates coming into the day and the 71-Bcf build seen in the corresponding week in 2016, but below the 90-Bcf five-year average addition.

The largest injection shortfall relative to the five-year average occurred in the South Central salt region, where warmer-than-normal weather contributed to increased cooling-related demand for natural gas, the EIA said in its latest "Natural Gas Weekly Update." The net injection in the South Central salt region for the storage review week was 1 Bcf, or 9 Bcf lower than the five-year average of 10 Bcf.

Absent similar weather-driven demand support in midrange forecasts that reflected predominantly mild conditions across the bulk of the country, subsequent storage reports could reflect an improved rate of inventory builds.

The latest National Weather Service outlook maps show below-average temperatures engulfing a section of the southern Rockies, a majority of the central U.S. and a large area of the East Coast through both the upcoming six- to 10-day and eight- to 14-day periods, as average temperatures settle over the upper tier of the Northeast, portions of the Southeast and parts of the west-central U.S. Above-average temperatures should be confined to much of the West, a patch of the Midwest, the southern tip of Texas and the fringes of the Southeast.

The prevalence of average and below-average temperatures across the central and eastern U.S. should keep cooling demand at bay and heating load subdued given the time of the year.

Weather support for demand could return further out, however, as the latest seasonal forecast from The Weather Company showed warmer-than-normal conditions across all of the major population centers of the western, southern and eastern U.S. for the June-August period.

According to Jeff Richter, principal at EnergyGPS, which partnered with The Weather Company in the outlook, "If the warm forecasts in the East hold true in June, the demand should be there from the power sector. Residential-commercial demand is going to be in the single digits here shortly and will likely stay at that level for some time." Richter also warned that there has been no real move in the overall natural gas output, signaling a possible tightening of the supply/demand balance.

Rising cooling demand amid warmer weather alongside flat production would limit the amount of natural gas available to be moved into underground storage facilities.

At the cash markets, mixed weather and demand outlooks drove choppy price action for natural gas booked Thursday for Friday flow.

Regionally, Northeast day-ahead gas pricing unraveled almost 8 cents to average at $2.785/MMBtu, as Gulf Coast spot gas price activity logged a near 2-cent retreat in trades averaging at $3.005/MMBtu. Conversely, Midwest cash gas price action advanced by roughly 1 cent to an index at $2.933/MMBtu, as West Coast next-day gas prices climbed by about 3 cents on average to an index at $2.806/MMBtu.

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Among the key delivery locations, the downside prevailed. Transco Zone 6 NY cash gas price activity tumbled by around 16 cents to an index at $2.720/MMBtu, as benchmark Henry Hub day-ahead gas prices slumped by roughly 4 cents on average to an index at $3.099/MMBtu. Chicago spot gas price action deflated by about 1 cent in deals averaging at $3.019/MMBtu, as PG&E Gate hub pricing notched a near 4-cent gain against the broad decline to average at $3.420/MMBtu.

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Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power and natural gas index prices, as well as forwards and futures, visit our Commodities Pages.