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May gas futures post modest gains ahead of contract expiration

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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


May gas futures post modest gains ahead of contract expiration

Afterending the prior session down 3.1 cents at $2.032/MMBtu, May natural gas futuresnotched gains overnight ahead of the Wednesday, April 27, open, driven by short-coveringleading up to the contract's roll off the board at the close of business but limitedby an overriding fundamental weakness, as milder spring weather spells lacklusterdemand against a backdrop of robust supplies. The contract climbedto a $2.059/MMBtu high and was last 2.3 cents higher at $2.055/MMBtu.

Despitethe uptick in futures, the level of natural gas supply at the onset of the shoulderseason, when subdued demand due to a lack of significant cooling or heating requirementsshould allow for natural gas to flow more heavily into underground storage facilities,is keeping downside risks intact for the market. Total working naturalgas in storage currently sits at 2,484 Bcf, or 881 Bcf above the year-ago leveland 811 Bcf above the five-year average of 1,673 Bcf, after the U.S. Energy InformationAdministration outlined a net 7-Bcfbuild to stocks for the week to April 15.

Althoughbetter than consensus estimates, the reported addition to stocks was well belowboth the 45-Bcf five-year-average injection and the 82-Bcf build seen in the correspondingweek in 2015, marking a slow start to the injection season. But thepace of storage-building is poised to accelerate in the coming weeks, as moderateweather associated with the spring shoulder season spells comfortable conditionsthat are not expected to have generated significant calls on natural gas for eitherheating or cooling requirements.

The NationalWeather Service forecast map for the six- to 10-day period shows below-average temperaturesspanning the lower tier of the Midwest, nearly all of the south-central U.S. andabout half of the Intermountain West, as above-average temperatures encompass thebulk of the West, a portion of the west-north-central U.S. and a small section ofthe Southeast. Average temperatures settle over a majority of the Eastern Seaboard,a few parts of the Midwest and narrow band stretching from Wyoming into the IntermountainWest.

Below-averagetemperatures grip the fringes of the Midwest, much of the Mid-Atlantic and a majorityof the country's southern tier in the eight- to 14-day outlook, as above-averagetemperatures hold over most of the West, the upper section of the Midwest and nearlythe entire Northeast. Average temperatures linger over the balance of the Northeastand Mid-Atlantic into a narrow swath in the midsection of the Midwest and a smallarea in the Southwest, as well as over the southern tip of Florida.

Higherlow temperatures implied by the calendar for lingering below-average temperaturesreadings should dampen any residual heating demand and provide a respite ahead ofthe onset of strong cooling demand leading up to summer.

Limiteddemand alongside stalled but still healthy natural gas production should allow foran uptick in the rate of weekly storage injections, which would augment alreadyhefty supplies. For the next weekly storage report due out from theEIA on Thursday, April 28, that will cover the week to April 22, market participantsanticipate a double-digit addition to stocks likely between the five-year-averageinjection of 52 Bcf and the year-ago build of 84 Bcf.

In cashtrading, losses were dominant in price activity for natural gas booked April 26,as weather signaled demand erosion into midweek.

Acrossthe major delivery locations, a near 10-cent dip took Transco Zone 6 NY day-aheadgas pricing to an index at $1.400/MMBtu, as a 7-cent slump pressured benchmark HenryHub cash gas price action to an average at $1.897/MMBtu. A reduction of about 3cents steered PG&E Gate next-day gas pricing to an index at $2.060/MMBtu, asa decline of almost 2 cents drove Chicago spot gas price activity to an averageat $1.920/MMBtu.

Regionally,Northeast cash gas price action notched a negligible less-than-1-cent loss on theday as it averaged at $1.890/MMBtu, while Gulf Coast next-day gas price activitythat found an index at $1.844/MMBtu logged a near 3-cent decline. West Coast spotgas prices deflated by about 9 cents on average to an index at $1.634/MMBtu, asMidwest day-ahead gas pricing shed more than 5 cents to average at $1.863/MMBtu.

Marketprices and included industry data are current as of the time of publication andare subject to change. For more detailed market data, including power andnatural gas indexprices, as well as forwards and futures, visitour Commodities Pages.