Natural gas futures edged higher last week with most of the gains attributed to last Monday’s “gap and go” rally which was the result of a steep drop in production numbers from the previous week. The market was under pressure most of the week, however, but not enough to erase those earlier gains. The settlement was only slightly above a pair of bottoms at $1.822 and $1.802.
Last week, July natural gas futures settled at $1.881, up $0.048 or +2.62%.
After the initial rally, traders seemed to forget about the drop in production and prices retreated. Prices even fell after the release of an uninspiring government storage report on Thursday. Spot gas prices also moved lower across the country amid a lack of widespread heat.
US Energy Information Administration Weekly Storage Report
On Thursday, the U.S. Energy Information Administration (EIA) reported that domestic supplies of natural gas rose by 81 billion cubic feet for the week-ended May 15. That figure matched the average increase forecasted by analysts polled by S&P Global Platts.
Total stocks now stand at 2.503 trillion cubic feet, up 779 billion cubic feet from a year ago, and 407 billion cubic feet above the five-year average, the government said.
Short-Term Weather Outlook
Bespoke Weather Services pointed out that when the smoke clears, the prompt month continued to be stuck in a range as it rallies off the $1.60 – $1.65 level, but then gets sold once above $1.90, Natural Gas Intelligence (NGI) reported.
“Given the uncertainties ahead regarding production, LNG, and of course how much demand comes back” amid the coronavirus, “we may well continue to simply trade in this range with some sharp moves, but no logical reason to deviate from said range,” said Bespoke. “We also have June expiration” on Wednesday, “which could promote some erratic moves as well.”
With only pockets of heat so far this summer, widespread cooling demand doesn’t appear to be in the cards until mid-June at the earliest. The latest weather models shifted cooler in the eastern United States for early June in the wake of a weak trough passing through the region, Bespoke said. This includes in Texas, where an upper-level weakness could result in more rainfall for the next couple of weeks, “blunting heat attempts there, though keeping wind rather low in the process,” according to the forecaster.
“Toward mid-June, we suspect some heat expands eastward, though that is beyond the 15-day time frame for right now,” Bespoke said.
The bullish production news that drove prices sharply higher last Monday, seems to have gone away. Meanwhile, bullish traders are still waiting for the demand from the easing of coronavirus restrictions to kick in. Traders are also waiting to see the La Nina pattern that could determine whether the summer will be hotter than usual.
Looking ahead to the next government report, analysts at Tudor, Pickering, Holt & Co. (TPH) see week/week demand down around 4.3 Bcf/d, driven by lower residential/commercial loads but partially offset by higher power burns as cooling demand begins to pick up.
“Thankfully, the supply side has come off meaningfully as well, preventing what could have been a very ugly storage print. EQT’s removal of 1.4 Bcf/d of supply from the market was the key piece, with Texas volumes also down around 1.Bcf/d week/week, contributing to an aggregate drop of about 2.6 Bcf/d.”
Look for a sideways to lower trade with periods of unexpected short-covering price spikes. This type of price action is likely until we get a stronger summer weather pattern or a better outlook for demand as coronavirus-related restrictions until to ease.
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