September 7, 2020 at 8:16 am

Natural gas futures closed lower last week, but well-enough off its low to keep it in a position to challenge the previous week

By Sandesh Ilhe

Natural gas futures closed lower last week, but well-enough off its low to keep it in a position to challenge the previous week’s multi-month high at $2.743. The introduction of cooler temperatures in the Midwest and parts of the East Coast weighed on prices as well as worries of more robust stockpile injections in coming week.

Additionally, uncertainty over when Sabine Pass LNG feed gas resumes also kept buyers on the sidelines. The weekly government storage report came in within the range, but it did indicate some signs of supply/demand tightening. However, it wasn’t enough to fuel another breakout to the upside.

U.S. Energy Information Administration Weekly Storage Report

The EIA weekly storage report showed a build of 35 Bcf for the week-ending August 28.

According to the EIA, working gas in storage was 3,455 Bcf as of Friday, August 28. This represents a net increase of 35 Bcf from the previous week. Stocks were 538 Bcf higher than last year at this time and 407 Bcf above the five-year average of 3,048 Bcf. At 3,455 Bcf, total working gas is above the five-year historical range.

Short-Term Weather Outlook

While cooling temperatures are expected over much of the central United States, NatGasWeather said overall demand could continue to prove strong during the week following Labor Day, driven by “hot conditions over the West and very warm conditions” over the South and areas of the East.

Brad Harvey, a senior meteorologist for Maxar’s Weather Desk, said summer 2020, through August, was the third hottest on record, with a run of consecutive days between June 18 and August 2 on the hot side of the 30-year normal high temperature.

But analysts say prices are highly dependent on continued heat waves, given still soft commercial energy needs and light U.S. liquefied natural gas (LNG) demand amid the ongoing coronavirus pandemic, Natural Gas Intelligence (NGI) wrote.

Weekly Forecast

“The market is struggling to pin down where fair value is,” Bespoke said. “It is difficult for us to see a bullish case for the October contract, given some risk that containment creeps back into the picture.”

However, while temperatures have begun to cool in the Midwest and forecasts call for broadly milder conditions in mid-September, late summer heat permeates the West and parts of the East, propping up near-term demand, according to NGI.

“Given the time of year,” Bespoke said, “heat needs to be strong, relative to normal, in order to significantly move the needle.”

LNG feed gas is also going to be a major concern until demand returns to pre-Hurricane Laura levels. Feed gas flows to the Sabine Pass and Cameron LNG export facilities in Louisiana are still near zero. This is a big worry because increased exports could prove essential on the demand front if autumn temperatures are too low to get air conditioners cranking.

In other news, early forecasts are calling for a storage injection in excess of 60 Bcf when the EIA reports next Thursday (September 10), and an even higher build the following week. Bespoke Weather Services sees a weekly build of 62 Bcf and 77 Bcf respectively. Jumps of this size could renew worries about fall containment issues.

Finally, we’re hitting the peak of hurricane season which means we could start to see a rise in the number of tropical storms. I live in Florida so I take these storms seriously. Some analysts like to mention hurricanes in their comments like it’s part of a game that speculators are playing.

As of early Sunday morning, there is no hurricane premium in the market. There are tropical disturbances in the Atlantic, but as we saw with Hurricane Laura, they won’t have an impact on prices unless they move into the Gulf of Mexico. Don’t believe the hype from other analysts. Not every hurricane impacts natural gas prices so it’s not necessary to comment on them every day until the National Hurricane Center makes its official forecast.

For a look at all of today’s economic events, check out our economic calendar.

Sandesh Ilhe

With an Engineers degree in Advanced Database Management and Information Security, Sandesh brings the deep understanding of the digital world to the table. His articles reflect the challenges and the complexities that come along with every disruption in the industry. He carries over six years of experience on working with websites and ensuring that the right article reaches the right reader.

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