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August natural gas pulls back despite hot weather outlook

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Essential Energy Insights - February 2021

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021


August natural gas pulls back despite hot weather outlook

Naturalgas futures continued to trade in a sideways pattern but steered lower late inthe session Monday, July 18, as the front-month August contract settled theweek's opening session down 3.4 cents at $2.722/MMBtu.

Thegas market continues to seek balance as analysts expect record-high inventoriesahead of winter despite a string of below-average weekly injections andforecasts pointing to much hotter weather through the end of July.

NationalWeather Service forecasts show above-average temperatures encompassing nearlyall of the U.S. except for a small portion of the Northwest in the upcomingsix- to 10-day period, before overtaking the entire country in the eight- to14-day period.

Slidingjust 4.5 cents during the week ended July 15, the natural gas market continuesto consolidate"with prices held in tension between the support from a declining storagesurplus and what are still record inventories more consistent with lower pricelevels," Tim Evans, analyst at Citi Futures, said in a July 18 note toclients.

"Theforecast for warmer than normal temperatures promises a further reduction inthe storage surplus, but we also note an upcoming seasonal shift, with the lastweek of July looking like it may be the warmest of the year. Seasonallydeclining power sector demand may undercut cash market support for prices as wemove into August," he said.

Heatin the current weather forecast should support higher cooling demand in the coming weeks, whichwould limit storage injections.

Thelatest storage data showed yet another below-average weekly build of 64 Bcffor the week to July 8, below the 95-Bcf injection seen in the correspondingweek in 2015 and the 77-Bcf five-year average addition to stocks.

Inventoriesnow stand at 3,243 Bcf, still 507 Bcf above the year-ago level and 586 Bcfabove the five-year average.

Earlyestimates for the next weekly inventory report that will cover the week to July15 call for another modest injection to stocks ranged from 35 Bcf to 40 Bcf,which would compare against the 61-Bcf five-year-average build and the 70-Bcfinjection in the same week in 2015.

Anongoing slow rate of storage-building would result in a further reduction ofstock surpluses and a tighter supply to end the injection season, which couldforce downside revisions to end-of-season inventory estimates currentlypegged at a record of4,022 Bcf, according to the latest projections from the EIA.

"Iam maintaining my Nat Gas view and bias at neutral as the market is currentlystruggling to move into a new up leg," Energy Management Instituteprincipal Dominick Chirichella said in a July 18 report. "The marketremains surplus but the inventory overhang is narrowing as the injection seasonis continuing to underperform versus the historical data."

Atthe cash markets, most hubs across the U.S. saw spot prices run higher Mondayas the return of business-related demand to start the new workweek was met withhot weather that is ramping power demand forecasts.

AlgonGate in New England saw some of the only losses with spot prices averagingclose to 5 cents lower near $2.80/MMBtu, even as Transco Zone 6 New York ranmore than 20 cents higher to near $2.00/MMBtu.

Gainswere even greater in the West, where Malin in the Northwest jumped more than 20cents to an index above $2.70/MMBtu and SoCal Border added more than 25 centsto above $2.80/MMBtu.

Inthe middle of the country, benchmark Henry Hub in Louisiana was pegged near$2.80/MMBtu for a gain of about 15 cents and an average just below ChicagoCitygate.

Market prices andincluded industry data are current as of the time of publication and aresubject to change. For more detailed market data, including power, natural gas and coal index prices, as well as forwards and futures, visit our Commodities Pages.