After ending the prior session up 0.8 cent at $3.028/MMBtu, NYMEX July natural gas futures extended gains overnight ahead of the Friday, June 9, open, amid lingering weather support, as forecasts continue to reflect a warming trend across much of the country that should bolster demand for cooling and limit storage injections in the weeks ahead. At 6:31 a.m. ET (1031 GMT), the contract was 3.2 cents higher at $3.060/MMBtu.
The pace of storage-building accelerated significantly in the latest inventory report week that ended June 2, for which the U.S. Energy Information Administration outlined a surprisingly large 106-Bcf injection that was above the full range of estimates coming into the day, as well as both the 68-Bcf addition seen in the corresponding week in 2016 and the 94-Bcf five-year average build.
The reported build took total inventories to 2,631 Bcf, or 332 Bcf below the year-ago level and 237 Bcf above the five-year average of 2,394 Bcf.
Although the storage data 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 release note.
Having digested the data, market focus shifted to the warming trend of late and in store, associated with stronger cooling demand, which could allow for a renewed slowdown in the rate of weekly stock injections.
In its latest "Natural Gas Weekly Update" for the week to June 7, the EIA said that warmer weather in the Midwest and Southwest regions contributed to an 11% gain in power burn week on week that drove a 1% uptick in total U.S. gas consumption, as dry production and overall supply remained flat over the same period.
Increased demand absent significant changes in supply would limit anew the amount of natural gas available to be moved into underground storage facilities in the subsequent inventory reports.
Further out, updated National Weather Service forecasts show above-average temperatures holding over a majority of the eastern U.S., parts of the West and the southern tips of Texas and Florida in the upcoming six- to 10-day period, before slightly receding from the east-central U.S. but remaining dominant in the East and overtaking nearly the entire West, most of Texas and the southern tier of Florida to ultimately envelop the bulk of the country in the eight- to 14-day period.
Average and below-average temperatures spanning a majority of the South, most of the West and parts of the Midwest in the six- to 10-day outlook shrink in scope in the eight- to 14-day projection to be contained to portions of the central U.S. and South.
Although cooler conditions in the central U.S. could temper demand for cooling, lingering heat in the East should allow for cooling demand to be elevated in the coming weeks and potentially allow for a renewed slowdown in the rate of storage building.
In cash action, the price of natural gas moved for Friday flow was predominantly tethered to the downside.
Among the major delivery locations, Transco Zone 6 NY day-ahead gas pricing led the charge lower as it notched a roughly 14-cent decline in trades averaging at $2.088/MMBtu. Benchmark Henry Hub spot gas price activity followed with a near 8-cent slump to an index at $2.979/MMBtu, then Chicago and PG&E Gate hub prices that faltered by about 4 cents to indexes at $2.821/MMBtu and $3.135/MMBtu, respectively.
Regionally, Northeast cash gas price action posted a better-than-8-cent decrease as it averaged at $2.239/MMBtu, while Gulf Coast next-day gas price activity logged an almost 6-cent reduction in deals averaging at $2.828/MMBtu. Midwest day-ahead gas prices retreated by 5 cents on average to an index at $2.755/MMBtu, as West Coast spot gas pricing crumbled by near 8 cents to an index at $2.571/MMBtu.
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