The first leaf drops of fall are not expected for another three weeks, yet the autumn chill is already palpable in U.S. natural gas futures front-month contract. Gas is headed for its first weekly loss in five, ending a 48% fairytale rally that came on the back of untoward midsummer heat.
Weekly storage data for natural gas from the Energy Information Administration at 10:30 AM (14:30 GMT) today, is expected to show an injection of 34 billion cubic feet, the lowest since the week ended July 31.
Signs Of Slower Than Expected Demand After Hurricane Laura
Despite the bullish number expected on the inventory side, the slide on the Henry Hub could continue for a fourth day for the benchmark October contract as players look to cooler weather in the near term and signs of slower-than-thought demand recovery from Hurricane Laura damage.
As of Wednesday, Henry Hub’s front-month October gas was hovering at under $2.50 per million metric British thermal units, booking a near 6% drop on the week. It had gained a combined 47.7% gain in four weeks prior.
Technically, Investing.com still had a daily call of “Strong Buy” on October gas, projecting a top-end model of $2.734 on its “Classic” model.
NYMEX’s winter months from December through March were all trading above the key bullish level of $3 too, suggesting firm convictions for cold and power burns from gas.
Concerns Over October-November Demand
Yet, concerns linger over October-November, the shoulder season for gas demand. That could apply further pressure on Henry Hub’s front-month, pushing it to between $2.40 and $2.30 in the interim.
Dan Myers, analyst at Houston-based gas risk consultancy Gelber & Associates, said in an email to the firm’s clients seen by Investing.com on Wednesday:
“Gulf of Mexico production has begun to recover this week while LNG and industrial demand along the Gulf Coast continues to struggle.”
“This will loosen balances and combine with milder temperatures boost the storage in the next report after this.”
But he had another concern: demand.
“If demand struggles, the market’s downside could quickly return as storage injections appear ready to ramp up towards triple-digit levels by the end of this month.”
“Inventories remain on track for a near-record finish above 4 trillion cubic feet.”
Naturalgasintel.com expressed similar thoughts on its market blog for gas on Wednesday, quoting Genscape analyst Dan Spangler as saying that demand along the U.S. Gulf Coast of Mexico may take weeks to rebound to levels prior to Laura.
“Notable examples” of weak demand include Motiva’s 607,000-barrel-per-day refinery in Port Arthur, Texas which he said appeared scheduled to consume roughly 50% of the gas it normally did. “The facility spent only one day shut down when Laura made landfall last Thursday,” Spangler said.
The Natgasoline methanol plant in nearby Beaumont, Texas was another marked down for weak demand, he said.
The Beaumont plant spent three days offline based on scheduled natural gas deliveries, but has since returned to only 70% of normalcy, Spangler noted, adding that the Motiva and Natgasoline facilities combined used to consume well over 100 million cubic feet of gas daily.
In Louisiana’s Cameron Parish, the Sabine Pass and Cameron liquefied natural gas export facilities have yet to resume significant operations as of Wednesday, Spangler said.
“Cameron LNG hasn’t reported taking any feed gas since Aug. 26,” he added. “Sabine has similarly been at zero since Aug. 25. However, the Creole Trail Pipeline is reporting a tiny 8 million cubic feet of delivery to the facility as of the evening cycle of Wednesday’s gas.”
Analysts at EBW Analytics had a similar read.
“The main issue at this point is the time frame for restoring power at Sabine Pass and Cameron.”
“There are indications that power is already flowing at Sabine Pass. Refineries and industrial plants located near Cameron, however, have stated that restoration of power to their facilities could take up to three weeks, raising questions regarding the restart of Cameron. Until this uncertainty is resolved, the October natural gas contract is likely to remain under pressure.”
Cooling Weather Expected To Curb Air Conditioning Demand
Cooling weather could curb air conditioning use, and ongoing concerns about recovery from Laura, which made landfall on Aug. 27, will continue to keep Henry Hub futures in check.
On the weather front, NatGasWeather projected continued modest temperatures across much of the nation’s midsection, with highs of 60s to low 80s. Highs could dip into the 50s in parts of the central U.S. next week, limiting cooling demand.
Aside from the chillier weather in the Midwest, NatGasWeather said “hot high pressure rules the West” in the near term “with highs of upper 80s to 100s,” and the soaring temperatures are likely to persist next week, with the hottest conditions in California and the Southwest. The East will warm into the mid-80s to low 90s as high pressure builds in for a modest bump in national demand” this week, the forecaster said.
But warmer temperatures may still linger in some parts of the country, said Dominick Chirichella, director of risk and trading at the Energy Management Institute in New York.
“A major summer heat event will impact the West during the day 4-9 time frame,” Chirichella said in an email to clients circulated on Wednesday and seen by Investing.com.
His models showed the first major shot of autumn cold on tap for Central United States during the day 6-10 period, with some coolness lingering in the 11-15. He added:
“Significant heat will build across the West during the day 2-5 period, especially closer to the West Coast. Highs will be over 100 degrees for days 4-5 in downtown Los Angeles.”
“Portland, Oregon should see highs well into the 90s by day 5. The warmest anomalies will be across California through the western Great Basin. Above normal temperatures across the East will gradually step down during the period.”
Chirichella said Central United States will see cool anomalies at first, but warmth will briefly build Friday and Saturday across the Plains.
“Flooding will remain a threat today and Thursday from northeastern Texas through portions of the Middle Mississippi Valley,” he wrote. “Severe storms will be a threat across the northern Mid-Atlantic Thursday.”