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July natural gas ticks higher ahead of weekend break

July natural gas futures struggled to hold the upside in the week's closing session, while reaching a $3.066/MMBtu high on the back of expectations for rising demand, the contract slipped back to a settle 1.1 cents higher at $3.039/MMBtu.

Above-average temperatures forecast for major cooling regions are anticipated to boost demand for natural gas as a fuel for power generators as utilities work to meet an increased load as customers turn on air conditioners in order to beat the heat.

The latest revisions to the six- to 10-day weather map from the National Weather Service shows fewer areas where heat will dominate comparative to the prior-day map. Above-average temperatures shrink back to encompass the Northeast, mid-Atlantic, portions of the Southeast, central and West, while an area that includes a portion of the Southeast, the Gulf region, areas in the central U.S. and in the West will be under average conditions. Below-average temperatures are forecast for an area spanning portions of the north-central region, the Rockies and the Northwest.

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For the eight- to 14-day period, the eastern quarter of the U.S. will see conditions similar to the earlier period, while the above-average temperatures expand from the West to engulf a larger portion of the west-central U.S. Consequently, the area of average temperatures shrinks to include a portion of the central U.S. and sections of the Gulf region, as well as portions of Georgia and Florida. Small areas of below-average temperatures are forecast for parts of the north central U.S and the Gulf.

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While the market typically looks to demand support in the Northeast, the heat across the Southwest and Midwest during the review week to June 7, supported an 11% week on week increase in demand for power burn, according to the U.S. Energy Information Administration.

Overall, however, natural gas consumption rose by just 1% on the week, while supply remained steady on the week, averaging 77.4 Bcf/d, the EIA said in its "Natural Gas Weekly Update."

Demand could get a bigger boost with the pending weather and drive inventory injections through the midrange period lower, after a surprisingly large injection reported for the week to June 2.

The latest inventory report from the EIA outlined a net 106-Bcf injection into natural gas inventories that beat the market consensus ahead of the report's release that called for a 98-Bcf addition into storage and was above both the 68-Bcf injection reported for the same week in 2016 and the five-year average injection of 94 Bcf.

The build brought total U.S. working gas supply to 2,631 Bcf, or 332 Bcf below the year-ago level and 237 Bcf above the five-year average storage level of 2,394 Bcf.

While the report was a bearish surprise that also suggests some weakening of the underlying supply/demand balance, the reporting period spanned the Memorial Day holiday, which may have had a one-time effect in suppressing commercial and industrial demand, Citi Futures analyst Tim Evans said in a post-data note.

The EIA reported industrial sector consumption decreased by 1% week over week in the review week to June 7, while residential and commercial sector consumption declined by 18%, a decrease of less than 2 Bcf/d.

Despite the inclusion of the lower demand weekend days in the three-day offering moved in day-ahead markets Friday, price support was to the sharp upside in the Northeast, but was to the downside on the opposite coast.

Transco Zone 6 NY bounded nearly 65 cents higher on the session to an index atop $2.70 and Tetco-M3 climbed nearly 20 cents to near $2.20. Also higher on the day, Henry Hub trade was about 5 cents higher to an index near $3.00, while Chicago added about 5 cents to an index near $2.70.

Conversely, trading at Waha was off about 10 cents to an index below $2.50, SoCal Border trades were about 20 cents lower to an index below $2.50, and PG&E Gate deals shed about 5 cents to average below $3.10.

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, natural gas index prices, as well as forwards and futures, visit our Commodities pages.