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September natural gas adds to gains in extended bargain hunting


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September natural gas adds to gains in extended bargain hunting

NYMEX September natural gas futures traversed both sides of the ledger Tuesday, Aug. 8, but finished higher as bargain hunters bid up the price against fundamentals still weighing the market down. The contract settled with a 2.1-cent gain at $2.822/MMBtu, after trading a range of $2.783/MMBtu to $2.832/MMBtu through the session.

The market continues to consolidate above last week's lows, as weather forecasts suggest cooling that is limiting buying interest as lackluster demand should drive improvements in weekly storage injections and work inventories toward a near record end-of-season level.

Participants are looking toward the Thursday, Aug. 10, release of natural gas inventory data covering the week to Aug. 4, with the expectation for a build that once again lags behind the five-year-average injection, thus cutting the remaining surplus to the five-year average.

Outlooks currently span injections of 25 Bcf to as much as 40 Bcf, while consensus is forming near an injection of 35 Bcf for a week that was cooler than both last year and the average.

At the consensus figure, the build would drive total working gas inventories to 3,045 Bcf, and with a comparison to the 54-Bcf five-year-average injection, the surplus to the five-year average would fade to 68 Bcf, while the year-on-year deficit would shrink to 268 Bcf with its comparison to last year's 24-Bcf build.

Although the rate of net injections would be supportive compared to the five-year average, the market's response could be muted as, "The market has been in the habit of ignoring the downtrend in the year-on-five-year average surplus," Energy Futures analyst Tim Evans said in a note.

For the week to July 28, the EIA reported a build of 20 Bcf that brought the working gas inventory to 3,010 Bcf. This marked only the third time that natural gas inventories reached 3,000 Bcf this early in the injection season.

The current supply level suggests that inventories could reach near record levels by the end of the injection season, which traditionally runs through the end of October but with recent years seeing builds well into November.

In 2012, when working gas stocks reached 3,006 Bcf on June 15, inventories reached 3,928 Bcf on Nov. 2, and in 2016, when working gas stocks were 3,041 Bcf by June 10, injections through Nov. 18 brought the total working gas supply to 4,045 Bcf, before weekly withdrawals began to erode the supply.

Estimates for end-of-October inventories range from Morgan Stanley analysts' projected consensus of 3.75 Tcf to as much as the 3.905 Tcf forecast by the EIA.

Putting pressure on demand and driving healthy expectations for weekly injections going forward, weather forecasts call for mild conditions in major cooling regions.

Nearly the entire country will see below-average temperatures in the latest six- to 10-day and eight- to 14-day outlooks from the National Weather Service.

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SNL Image

Pricing for Wednesday product moved at major hubs in day-ahead trade found support higher as demand outlooks propped up values.

In the Northeast, while Transco Zone 6 NY followed the wider market trend with a gain of about 1 cent that drove the index to better than $1.85, Tetco-M3 bucked the trend to trade about 1 cent lower to an index near $1.70.

Adding nearly 5 cents each, Henry Hub found an average near $2.75 while Chicago's index edged up to near $2.70.

Waha went against the wider trend to drift about 1 cent lower to an index below $2.60, while in the West, SoCal Border trades were nearly 5 cents higher to an index near $2.65 and PG&E Gate edged about 1 cent higher to near $3.20.

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.