Natural gas futures prices fall for eighth straight, hurt by robust production

Natural gas futures rallied on Friday, extending a long losing streak amid increased production volumes and strong inventories.

At the first sight:

  • Fixed stocks are under pressure
  • Output is holding above 102 Bcf/d
  • A different view of domestic demand

November Nymex gas futures lost 5.8 cents day/day to settle at $2.899/MMBtu. It recorded its eighth consecutive decline.

Point gas NGI National avg. fell 30.0 cents to $1,990, falling for a second straight day as demand for near-term weather thinned.

Production held above 102 Bcf/d on Friday — as it has all week — and hovered around 1 Bcf/d of record levels. At the same time, weather-driven national demand has moderated. There were bouts of cold air and rain from the Rocky Mountains north to the northeast, but overall conditions were mild in the south this month.

“National demand is expected to increase from October 29 to November. 1 as a weather system is tracking the northern US,” said NatGasWeather. However, longer-range forecasts continued to show temperatures near or above normal for most of the country through the first week of November.

Robust production and favorable weather in the south were evident in the latest government inventory data released on Thursday and hurt futures prices, according to analysts at The Schork Report.

“Natty bears have regained dominance thanks to robust dry gas production that remains well above 100 Bcf/d and a lack of weather demand,” Schork analysts said.

This was reported by the US Energy Information Administration (EIA). injecting 97 Bcf into the stockpile for the week ending October 13. The increase was driven by a surge in South Central supplies — 40 Bcf construction led all regions there — and far exceeded expectations for around 80 Bcf construction and the five-year average of 85 Bcf.

It raised inventories to 3,626 Bcf, keeping inventories well above the prior year’s level of 3,326 Bcf and the five-year average of 3,451 Bcf.

“The EIA has served tremendously,” analysts at Schork said, noting that the press kept futures heavily pressured.

Eli Rubin of EBW Analytics Group said the “massive” 40 Bcf injection in South Central “was 12 Bcf larger than any regional storage built in the last 11 months.” It was only the second warehouse construction in the region since Memorial Day.

“Regional weather is easing due to summer heat,” Rubin said, while strong production, including in the Permian Basin in Texas, should further bolster regional supply availability. “While consumer regions may continue to reduce injection as storage coffers fill, additional increased storage builds are possible in the South Central,” he said.

Looking ahead to the next EIA inventory for the week ending Oct. 20, analysts are looking for another bearish print. Preliminary estimates provided to Reuters ranged from injections of 59 Bcf to 86 Bcf, with an average increase of 73 Bcf. That compares with an injection of 61 Bcf a year earlier and a five-year average of 66 Bcf.

Manufacturing capability

Estimates by Tudor, Pickering, Holt & Co. (TPH) on Friday showed last week’s average production was 102.8 Bcf/d, up 1 Bcf/d week-over-week.

TPH analyst Matt Portillo reported higher volumes from the Permian, up 0.8 Bcf/d, and a 0.4 Bcf/d week-over-week increase in Marcellus Shale production.

“On the demand side, Mexican imports have started to decline as weather factors are minimized and are no longer above the 7 Bcf/d mark,” he said, estimating that US exports to its southern neighbor averaged 6.3 Bcf/d last week. .

Portillo said that helped offset overall LNG gas demand, which rose 1 Bcf/d for the week to an average of 14.3 Bcf/d. The increase was helped by the Cove Point LNG plant in Maryland coming back online and adding 0.8 Bcf/d of demand after lengthy maintenance.

For the next EIA report, Portillo modeled a 77 Bcf build.

Looking ahead, Portillo added that he is “cautious about the fundamentals” given the production strength and early predictions of a relatively mild winter.

“Ultimately, barring a cold winter, our balance sheet at the end of the drawdown is at very comfortable levels,” he said, meaning stocks could emerge bearish next spring.

Soft Spot markets

Cash prices fell to the lower 48s on Friday as demand dissipated.

NatGasWeather said it expects a smaller but short-lived increase in demand to begin next week’s trading as cold air “sweeps across the Great Lakes and Northeast with 30- and 40-second lows” on Monday and Tuesday.

“However, it is favorable for a warm high pressure system to build over the eastern half of the country later in the week, which “for light national demand” means above-normal highs in the 60s to 80s. Comfortable conditions were in the cards for most other regions.

Against that backdrop, Houston Ship Channel fell 58.5 cents day/day to average $1,865, while Chicago Citygate lost 38.0 cents to $1,855 a Northwestern Sumas fell 27.5 cents to $1,715.

Meanwhile, on the pipeline front, traders are likely to focus on Kinder Morgan’s ( KMI ) Permian Highway Pipeline ( PHP ) maintenance project scheduled for the coming week. It would limit Permian withdrawal capacity to 1.73 Bcf/d — from 2.1 Bcf/d — for several days.

“Prior pipeline outages have caused price volatility in the Waha Center given output constraints in the basin, including negative price events in May and July this year,” East Daley Analytics noted. Such work has had the opposite effect on prices on the West Coast, as Southern California needs Permian gas to meet demand. When PHP is limited and westbound flows are limited, SoCal Citygate tends to go up.

As weather-driven demand was absent on Friday, SoCal City Gate fell from $3,735 to $7,630. Wow in West Texas was down 70.0 cents at $1,290.

But the good news for utilities and price-sensitive consumers is that the California Public Utilities Commission recently voted to allow Southern California Gas Co. increase the maximum working capacity of the Aliso Canyon storage field by 27.6 Bcf to 68.6 Bcf, East. noted Daley analysts.

“In winter, the additional storage capacity could help cushion the West Coast from large price swings during cold weather bursts,” the East Daley team said.

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