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June natural gas sinks in 1st day as lead contract

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Essential Energy Insights - September 17, 2020

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Rate case activity slips, COVID-19 proceedings remain at the forefront in August


June natural gas sinks in 1st day as lead contract

Junenatural gas futures spent its first day in the lead on the defensive, pressuredby the report of a larger-than-anticipated build to natural gas inventories andby weather that should equate to additional large injections amid a lack ofdemand through the balance of the shoulder season. The contract settledThursday, April 28, 7.5 cents lower at $2.078/MMBtu.

TheU.S. Energy Information Administration released its weekly natural gasinventory report at 10:30 a.m. ET, outlining a build to stocks of for the week to April 22.The build was above expectations that called for a 70-Bcf injection, and whilesmaller than the 84-Bcf injection reported for the same week in 2015, it beatthe 52-Bcf five-year-average injection and brought the total working gas supplyto 2,557 Bcf. Inventories are currently 870 Bcf above the year-agolevel and 832 Bcf above the five-year average storage level of 1,725 Bcf.

Althoughproduction decline has sparked some recent concern combined with an earlyspring that saw lingering cold weather-related demand support, the latestweather outlooks show milder temperatures in major heat consuming regions thatshould diminish the lingering heating demand while also limiting a significantramp up in cooling load.

NationalOceanic and Atmospheric Administration forecasts for the upcoming six- to10-day period show above-average and average temperatures in the majority ofthe Northeast, below-average temperatures across the Mid-Atlantic, the majorityof the Southeast and Gulf, and portions of the Midwest, south-central U.S. andSouthwest. Average temperatures span down from areas in the east-central U.S.into the country's midsection and across into central California. The majorityof the north-central U.S. and the Northwest should see above-averagetemperatures.

Forthe eight- to 14-day period above-average temperatures will span across nearlythe entire northern half of the country while the southern half of the countrywill see a mix of average and below-average temperatures.

"Slowingproduction could be met with higher demand if temperatures rise this summer,which would bring some support to a persistently soft pricing environment,"the American Gas Association said in its latest "Natural Gas MarketIndicators" report.

"Abullish scenario is far from guaranteed though," the AGA said.

Naturalgas production decline, from a total U.S.rig count that is severely diminished at 431 rigs in the week toApril 22, with 343 oil rigs, down eight from the previous week and 360 belowthe year-ago level, and natural gas rigs at 88, down one on the week and 137below the year-ago level, will be offset by inventories from drilled butuncompleted, or completed but unconnected wells that are being brought tomarket, the AGA said.

Inday-ahead markets the price direction for a revised Friday-Saturday producttraded in the Thursday session varied with regional demand outlooks.

TheNortheast market was lower on the anticipation of demand erosion. Trades at theTransco- Zone 6 NY hub were lower by nearly 15 cents to an index closing in on$1.30. Nearby, Tetco-M3 trades were similarly lower and pegged beneath $1.30.At the Canadian border, Iroquois-Waddington deals averaged around $2.15, lowerby about 5 cents on the session.

Heatin the Gulf region supported a modest uptick at the benchmark Henry Hub asdeals climbed to an average near $1.90, but elsewhere in the region FGT Zone 3and Col Gulf Mainline each shed about 1 cent to index near $1.85. A loss ofless than 1 cent put Waha at an index atop $1.75, while in the country'smidsection, Chicago added less than 1 cent to an index below $1.95. A similargain at CIG brought that market's index atop $1.70. Across the West marketscontinued mixed action as SoCal Border and Malin each added about 1 cent toindexes around $1.80 and $1.75 respectively, while PG&E Gate edged downabout 5 cents to an index atop $1.95.

Traderswill move a Sunday-Monday product Friday to accommodate for the start of thenew month.

Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including our power,natural gas and coalindex prices, as well as forwardsand futures,visit our Commodities Pages. To view detailed EIA Weekly Natural Gas Storagedata, go to our Natural GasStorage Page.