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September natural gas futures slide amid dearth of fundamental support

After ending the prior session up 2.1 cents at $2.822/MMBtu, NYMEX September natural gas futures lost footing overnight ahead of the Wednesday, Aug. 9, open, amid overriding bearish fundamentals. At 7 a.m. ET, the front-month contract was up 0.4 cent at $2.826/MMBtu.

Weekly storage injections have trailed the five-year average throughout much of the refill season thus far, but the overall health of supply and prospects for diminished weather-related demand that should allow for near-record inventories by the end of injection season are keeping the downside viable.

Total working gas stocks currently sit at 3,010 Bcf after the U.S. Energy Information Administration outlined a 20-Bcf build in its latest storage data for the week ended July 28, marking only the third time that inventories breached the 3,000-Bcf mark this early in the refill season. The reported storage injection defied the 3-Bcf pull in the prior year but missed the 44-Bcf five-year average addition to stocks

Despite the sluggish pace of storage rebuilding, current inventories look to be on track toward a near-record level by the end of the injection season, which traditionally runs through the close of October, though recent years have seen ongoing 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.

For the next weekly storage report due out from the EIA on Thursday, which will cover the week to Aug. 4, market participants anticipate another smaller-than-average injection. Preliminary outlooks span builds from 25 Bcf to as much as 40 Bcf, with consensus formed at a 35-Bcf injection, which would compare to a 54-Bcf five-year-average build and a 24-Bcf addition in the prior year.

Market response to the potential downside miss against the five-year average could be muted, however, 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 research note to clients.

Further out, weather forecasts spell lackluster demand that should allow for larger storage injections that would keep inventories on a path toward the anticipated robust end-of-season level.

Updated National Weather Service projections reflect average to below-average temperatures across nearly the entire country through both the six- to 10-day and eight- to 14-day periods. Above-average temperatures settle over the fringes of the Northeast, Florida, upper edges of the Midwest, southern Texas and a section of California in the shorter-range view, before slightly expanding in scope but still ultimately remaining contained to much of the Northeast, Florida, a few parts of the central U.S. and portions of the Southwest.

In cash action, the price of natural gas booked for Wednesday flow was predominantly biased higher on the back of stronger demand forecasts.

Looking at the key hubs, an almost 5-cent increase drove Chicago next-day gas price activity to an index at $2.723/MMBtu, as near 1-cent gains on average took benchmark Henry Hub and PG&E Gate spot gas prices to indexes at $2.805/MMBtu and $3.197/MMBtu, respectively. Bucking the broad uptrend, a roughly 4-cent decline steered Transco Zone 6 NY hub action to an index at $1.909/MMBtu.

Regional averages favored the upside overall. Cash gas prices in the Midwest and on the Gulf Coast advanced by about 2 cents on average to indexes at $2.591/MMBtu and $2.699/MMBtu, respectively. Day-ahead gas pricing in the West logged a near 1-cent uptick in deals averaging at $2.393/MMBtu, as spot gas price activity in the Northeast added around 7 cents on the session to average at $2.179/MMBtu.

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 and natural gas index prices, as well as forwards and futures, visit our Commodities pages.