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With production remaining well off recent highs and a concerning storage trajectory ahead of winter, natural gas futures rebounded to close of the week. The September Nymex gas futures contract settled Friday at $9.336, up 14.8 cents from Thursday’s close. October futures climbed 14.5 cents to $9.315.
Spot gas prices fell on Friday, though, as rainy weather and otherwise comfortable temperatures sapped demand. NGI’s Spot Gas National Avg. slid 50.5 cents to $8.385.
After another rollercoaster week, Friday’s price action along the futures curve was slightly more subdued but not exactly quiet. September futures traded in a wide band of about 50 cents, dipping into the red early in the session but then recovering by midday. The prompt month ultimately settled on the higher end of the range.
A little more than two months shy of the end of the storage injection season, the stubborn deficit inventories sit at compared to historical levels remains one of the most bullish factors impacting the gas market. The latest government data confirmed tight supply/demand balances and, in fact, painted a worsening backdrop.
The Energy Information Administration (EIA) said stocks for the week ending Aug. 12 rose by only 18 Bcf to reach 2,519 Bcf. This widened the gap to the five-year average by 29 Bcf to 367 Bcf.
The Schork Group noted that South Central stocks slipped for the first time in three weeks following back-to-back injections totaling 12 Bcf. The change was concentrated in salt inventories, while nonsalts reported no change.
The Schork analysts also pointed out that the East recorded a “miserable” 7 Bcf increase in stocks, which expanded the shortfall to the seasonal norm to a two-month high of nearly 15%. Midwest inventories, on the other hand, have been robust this summer and up 6.5% from last year’s build at this point in the season.
Season-to-date total refills have reached 1.137 Tcf, with the average injection from this point around 721 Bcf, give or take 50 Bcf. The EIA, in its Short-Term Energy Outlook published earlier this month, said it expects storage to reach close to 3.5 Tcf by the end of October.
“The EIA is supremely optimistic in its forecast,” Schork analysts said.
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The three largest injections from this point historically have been 1.056 Tcf in 2014, 981 Bcf in 2011 and 950 Bcf in 2015. “A 914 Bcf is not impossible, it’s just that the odds are long,” according to the Schork team.
After the prior week’s EIA report, they said the probability of hitting the agency’s forecast was about 15.4%. After the latest EIA storage data, that probability plunged to 7.7%.
Prices along the Nymex futures strip reflect the market’s concern. The contango on the balance of summer to the first two winter-month contracts has narrowed considerably over the past month.
The strength along the curve is indicative of a broken market, according to the Schork team.
“To compound matters, the market is nearing peak hurricane season, a situation that could propel futures contracts to unprecedented levels,” the analysts said.
On Friday, the National Hurricane Center (NHC) said showers and thunderstorms associated with a broad low pressure area over the southwestern Gulf of Mexico (GOM) continue to become better organized. Conditions favor further development, and a tropical depression could form as the system moves across the southwestern and western GOM. By Sunday, once the system moves inland, chances of development should end.
Regardless of development, this system could bring locally heavy rains to portions of northeastern Mexico and southern Texas through the weekend, according to NHC.
EBW Analytics Group, citing a Wall Street Journal article, said utilities are facing a transformer shortage this hurricane season. This increases the risks of lengthy power outages as supply chain snarls have quadrupled transformer wait times.
Already, some utilities are slowing transformer delivery to support load growth in an attempt to ensure sufficient supplies. Further, the issue could prove long lasting. One of the largest transformer suppliers in the country projected they are sold out through 2025.
“Short-term concerns are troubling in the event multiple, destructive hurricanes make landfall later this year,” EBW senior analyst Eli Rubin said. “Further evidence of supply chain disruptions impeding operations and potential long-term impedance of load growth could spell continuing challenges for the power sector for years to come.”
Spot gas prices plunged across the board Friday as significant heat was forecast to remain isolated to the West, with a large swath of the country expected to see seasonal temperatures.
Heavy rains also were keeping temperatures in check along the Gulf Coast, with daytime highs on Friday in Houston topping out in the upper 80s. Decent chances of rain over the next week would likely make a notable improvement in the drought conditions that have plagued the region this summer, according to forecasters.
“Just how much rain will Texas see over the next week or so? The answer is a lot,” said Houston meteorologist Matt Lanza of Space City Weather.
The National Weather Service’s current outlook for rainfall across Texas shows as much as 7 to 8 inches in interior Texas, including the Dallas-Fort Worth area and possibly the Austin and San Antonio areas as well. Higher amounts are possible, as is flooding across the state.
“Whatever the specifics, this is a big, big drought denter for the entire state of Texas,” Lanza said.
Prices reflected the respite from the heat and welcome rain. NGPL S. TX spot gas prices tumbled 41.5 cents day/day to average $8.385 for gas delivery through Monday. Houston Ship Channel dropped 30.0 cents to $8.500, while El Paso Permian plunged a much steeper 83.5 cents to $7.490 amid falling demand downstream in the Desert Southwest and California.
The SoCal Border Avg. dropped $1.655 on the day to average $8.595 for the three-day gas period, while Transwestern San Juan slipped 70.5 cents to $7.805.
Losses of up to 50 cents were common throughout the rest of the Lower 48, while Canadian prices mostly landed in the black on Friday. Westcoast Station 2 moved back into positive territory after climbing 54.0 cents day/day to average C5.0 cents/GJ.
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Spot natural gas prices softened during the Aug. 31-Sept. 2 trading period, with heavy rains and less intense heat spreading across the Lower 48. The West Coast was the only exception, and the region recorded huge spikes as California baked under triple-digit temperatures. NGI’s Weekly Spot Gas National Avg. fell 11.0 cents to $8.875/MMBtu. Futures…
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