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May gas futures defend upside on weather, storage support

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Essential Energy Insights - October 2021


May gas futures defend upside on weather, storage support

Maynatural gas futures were higher in the debut session as the lead contract.Weather continues to support market strength, while traders eye a return tonatural gas storage pulls when the U.S. Energy Information Administrationreleases its next report. The contract pulled back above the psychologicallyimportant $2/MMBtu mark to post a session and better-than-six-week high at$2.015/MMBtu, but settled back below the mark and higher by 1.5 cents at$1.996/MMBtu.

Themarket continues to pull support from weather forecasts that show below-averagetemperatures in major heat-consuming regions. Signaled by the anticipation oflingering cold weather-related demand, the market was pulled higher in shortcovering.

Weatherforecasts from the National Oceanic and Atmospheric Administration were littlechanged on the day, still showing extreme below-average temperatures engulfingthe Northeast and below-average temperatures gripping the Midwest along withthe Mid-Atlantic and portions of the Southeast through the six- to 10-dayperiod, while above-average temperatures dominate from the West across nearlythe entire central U.S.

Similarlyfew changes were made to the eight- to 14-day outlook as below-averagetemperatures are set to linger across the majority of the East andabove-average temperatures maintain dominance over the bulk of the country.

Asweather holds sway over the market, participants found added support from theanticipation of a brief return to storage withdrawals when the EIA releases itsreport covering the week to March 25 at 10:30 a.m. ET on Thursday.

Asurvey of analystsand traders leading up to the report's release outlines a net change for thereview week, ranging from a 16-Bcf withdrawal to a 33-Bcf pull, with aconsensus formed at a 24-Bcf drawdown from stocks that would compare against afive-year average withdrawal of 22 Bcf and the 10-Bcf drawdown reported for thesame week in 2015.

Inthe previous data, the EIA reported a net 15-Bcf injection into natural gas inventories in theLower 48 during the week ended March 18 that was below expectations coming intothe day and compared against the five-year average withdrawal of 24 Bcf and theyear-ago pull of 4 Bcf. The injection brought total U.S. working gas supply to2,493 Bcf, or 1,017 Bcf above the year-ago level and 846 Bcf above thefive-year average storage level of 1,647 Bcf.

Thewithdrawal anticipated in this week's data would result in a total working gassupply of 2,469 Bcf, tightening the year-on-year surplus to 1,003 Bcf and theyear-on-five-year average surplus to 844 Bcf.

Althoughmarking a step lower, at 2,469 Bcf the total working gas supply would be justbelow the record high 2,473 Bcf in storage on March 31, 2012. With just oneweek remaining in the withdrawal season and outlooks calling for an injectionin the week to April 1, inventories could make an end-of-season record high.

Thehealthy natural gas inventory is likely to return pressure to the market asweather turns milder heading deeper into spring.

Spot gas markets mixed bywarming

Day-aheadgas markets were mixed by weather as heat across much of the country supportedan uptick in values while a warm up in the East allowed for a price decline.

Warmweather will return to the Northeast in the upcoming days and drive downlingering heating demand that helped prop up values in the day-ahead markets inrecent sessions. Algonquin Citygates deals tumbled nearly 50 cents to post anindex around $1.30, while Iroquois-Waddington trades were lower by about 5cents with the index marked near $1.90. Outside of New York, Tetco-M3 tradeswere lower by about 20 cents on average with the index pegged near $1.20, whilein the city Transco Zone 6 NY deals were similarly lower and averaged beneath$1.30.

Thebuild-up of heat across other parts of the country provided upside support forvalues as early cooling demand comes into play. The benchmark Henry Hub addedmore than 5 cents to its prior-day index amid warm weather and backed byextended gains in natural gas futures. The hub found an index near $1.85.Similar gains at Col Gulf Mainline and FGT Zone 3 brought indexes atop $1.75and $1.90, respectively. With the same fundamental support, Chicago added about10 cents to an index near $1.95, and a similar gain at Waha in Texas drove theaverage to around $1.80. Across the West, SoCal border deals were higher byabout 10 cents to around $1.80, PG&E Gate ticked about 5 cents higher toaround $1.95 and Malin added nearly 10 cents to an index around $1.75.

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,naturalgas 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.