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July gas drifts higher amid conflicting fundamentals

After ending the prior session down 1.7 cents at a settle at $2.982/MMBtu to log its fifth consecutive day on the downside, NYMEX July natural gas drifted higher overnight ahead of the Tuesday, June 6, open, as supportive weather outlooks ran against pressure from still-robust inventories. At 6:21 a.m. ET (1021 GMT), the contract was 2.4 cents higher at $3.006/MMBtu, while trading a range from $2.972/MMBtu to $3.012/MMBtu.

Revised National Weather Service forecasts show above-average temperatures encompassing nearly the entire eastern two-thirds of the country and the fringes of the Southwest in the upcoming six- to 10-day period, before spilling into a majority of the Southwest and small patches of the Northwest further out to the eight- to 14-day period.

Below-average temperatures dominant across the West in the shorter-range view shrink in scope to be contained to the Northwest in the longer-range period, while average temperatures are expected to be scattered over the remainder of the western and central U.S. throughout both periods.

A warming trend across much of the country through the midrange should ramp up cooling demand, which has remained lackluster amid milder weather over the recent weeks. Cooler conditions of late over the eastern and central U.S. has kept a lid on heating demand given the calendar 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% week on week, as power burn declined by 6%, industrial-sector demand slumped by 1% and residential/commercial-sector consumption deflated by 11%.

Stronger demand for cooling amid warmer weather in store would divert natural gas toward the electric-power sector as utilities work to meet cooling load and away from storage facilities, allowing for a continuation of a relatively slow pace of inventory-building going forward.

The latest storage data from the EIA outlined a net 81-Bcf injection for the week ended May 26, which bested estimates coming into the day and the 80-Bcf build seen in the corresponding week in 2016 but was a downside miss against the 97-Bcf five-year average addition to stocks. It included a reclassification of 4 Bcf from working gas to base gas in the Mountain region, resulting in an implied flow of 85 Bcf for the week in review.

The reported injection took total working gas stocks to 2,525 Bcf, or 370 Bcf below the year-ago level and 225 Bcf above the five-year average 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 that is keeping the downside viable.

In cash trading, natural gas prices for day-ahead flow were predominantly biased higher June 5.

Looking at the key hubs, a 25-cent increase steered Transco Zone 6 NY spot gas price action to an index at $2.100/MMBtu, as a near 16-cent gain drove Chicago next-day gas pricing to an average at $2.847/MMBtu. A roughly 11-cent uptick brought PG&E Gate hub activity to an index at $3.104/MMBtu, as an almost 7-cent advance took benchmark Henry Hub cash gas pricing to an average at $2.917/MMBtu.

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On a regional basis, Northeast day-ahead gas price activity logged a near 27-cent gain in deals averaging at $2.396/MMBtu, as Midwest cash gas prices rose by about 11 cents on average to an index at $2.753/MMBtu. West Coast spot gas pricing ascended by almost 21 cents to an index at $2.587/MMBtu, as Gulf Coast next-day gas price action tacked on around 7 cents to average at $2.837/MMBtu.

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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.