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August natural gas drifts into a slightly higher settle

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Essential Energy Insights - October 2021


August natural gas drifts into a slightly higher settle

Amiduncertainty driven by a still hefty natural gas inventory, but eroding storageoverhangs, rising demand and shrinking production, natural gas traderscontinued to move August gas futures both higher and lower, searching for acomfortable position before settling the Wednesday, July 13, session 0.3 centhigher at $2.737/MMBtu.

Naturalgas inventories that currently stand at 3,179 Bcf after a was reported by theU.S. Energy Information Administration for the week to July 1 remain a weighton the market, forcing a struggle to maintain footing amid otherwise bullishfundamental support.

Thetotal working gas supply is 538 Bcf above the year-ago level and 599 Bcf abovethe five-year average, and the EIAanticipates inventories to end the injection season at a freshrecord of 4,022 Bcf at the end of October, but the overhangs have beenshrinking steadily through the injection season as weekly builds haveunderperformed against historical averages.

Tradersand analysts looking to the July 14 storage report from the EIA that will coverthe week to July 8 anticipate a range of injections spanning 46 Bcf to 65 Bcf,with consensus formed at a 58-Bcf build to stocks for the review week. Althougha step above the recent string of much smaller injections, the build wouldstill compare bullishly against a 77-Bcf five-year-average injection and the95-Bcf build reported for the corresponding week in 2015.

Naturalgas storage additions have been running up against strong demand, with hotweather in major consuming markets supporting power burn as utilities rungas-fired generators to meet customer cooling load.

Weatheroutlooks from the National Oceanic and Atmospheric Administration continue tosupport strong demand, with the six- to 10-day and eight- to 14-day projectionsoutlining the likelihood of above-average temperatures to continue across theeast and central U.S. through the end of the month. Longer-rangeprojections call for an extension of the heat through August.

Atthe same time, natural gas production is slowing according to the latest data.The decline is due, in part, to supply disruptions resulting from a fire at aprocessing plant in Mississippi.

"Pricemomentum has taken a breather as supply disruptions from a processing plantfire in Mississippi are being restored, as apparent in Destin Pipeline flowdata," analysts with Guggenheim Securities, LLC said."However, we believe momentum will resume as August injections are 6-7bcf/d lower than year-ago levels based on current weather forecasts."

Theanalyst team at Guggenheim expects the 538 Bcf year-on-year storage surplusshould be eliminated by November. Further, the analysts said gas demand has yetto show price elasticity that has been a fear since the March lows and raisedtheir 2017 price outlook to $3.25 from $3.00.

Day-aheadgas trade was to the upside in the Wednesday session for Thursday flow. Weatherwas driving strong demand for natural gas as a fuel for power generation andnatural gas market responded with gains nearly across the board.

TranscoZone 6 NY trades were about 30 cents higher to an index near $2.30, Tetco-M3gained about 5 cents to an index near $1.50, Henry Hub trades were about 5cents higher to around $2.80. Chicago gas jumped about 5 cents as well,supporting the index to near $2.75 and Waha traded similarly higher to an indexatop $2.65. In the West, SoCal Border trades averaged at around $2.75, gainingmore than 5 cents on the session, while PG&E Gate gained nearly 10 cents toan average near $3.00.

Market prices andincluded industry data are current as of the time of publication and aresubject to change. For more detailed market data, including power,naturalgas and coalindex prices, as well as forwardsand futures,visit our Commodities Pages.