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July natural gas ends seesaw session with modest loss

July natural gas futures seesawed through the week's opening session and finished nearly unchanged in shallow negative territory. The contract moved in a range from $2.935/MMBtu to $3.047/MMBtu and settled the Monday, June 5, trading day 1.7 cents lower at $2.982/MMBtu.

Technical buying drove the day's early gains alongside fundamentals that are increasingly less bearish, with weather forecasts suggesting a bump up in cooling demand that could slow weekly storage injections.

The latest forecasts from the National Weather Service show above average temperatures slated to engulf the eastern two thirds of the country in the six- to 10-day period and ease back over the eight- to 14-day period to encompass the entire east, a portion of the central and an area of the West.

SNL Image

SNL Image

Demand for power generation has been limited over recent weeks by cooler conditions in the east and central U.S. that limited heating demand and staved off a hike in cooling load.

For the review week to May 31, the U.S. Energy Information Administration reported total U.S. consumption of natural gas fell by 5% compared with the previous report week, as power burn declined by 6% week over week, industrial-sector consumption decreased by 1% week over week and residential/commercial-sector consumption declined by 11%.

Mild weather in the eastern and central U.S. over the midrange period could drive demand for cooling and increase the amount of natural gas needed by the power generating sector to run gas-fired generators in order to meet customer load.

An increase in demand from the power generating sector would have less natural gas moving into storage facilities, continuing a relatively slow rate of storage injections.

Natural gas inventory building improved marginally when the EIA reported a net 81-Bcf injection into storage during the week ended May 26, a build that was above market expectations but mixed against historical averages. The data included a reclassification of 4 Bcf from working gas to base gas in the Mountain region that resulted in an implied flow of 85 Bcf for the week under review.

The injection beat both the market consensus ahead of the report's release that called for a 75-Bcf build in stocks and the 80-Bcf injection reported for the same week in 2016, but missed the five-year average injection of 97 Bcf. The build brought total U.S. working gas supply to 2,525 Bcf, or 370 Bcf below the year-ago level and 225 Bcf above the five-year average storage level of 2,300 Bcf.

Despite the shrinking of the year-on-five-year-average surplus, the market is comforted by the tightening of the year-on-year deficit and continues to test the downside.

The price of natural gas moved in the day-ahead markets ran sharply higher at key delivery locations in Monday trade for Tuesday delivery.

West markets saw impressive gains on stronger demand, with SoCal Border deals advancing more than 25 cents to an index near $2.75, and PG&E Gate gaining more than 10 cents to an index near $3.10. On the opposite coast, Transco Zone 6 NY traded about 25 cents higher to an index near $2.10, and Tetco-M3 trades advanced more than 10 cents to an index atop $2.00. Henry Hub trades were nearly 10 cents higher to an index near $2.90, Waha jumped nearly 20 cents to an index near $2.70, while Chicago gained about 15 cents to an index near $2.85.

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.