‘More Ammo Needed’ for Natural Gas Futures After Perplexing Plunge on Bullish Storage Data

  • Someone poured natural gas futures traders a little too much coffee Thursday, with prices all over the place throughout the session. After surging to a $9.663/MMBtu intraday high and then plunging to an $8.913 intraday low, the September Nymex contract finally settled the day at $9.188, down 5.6 cents from Wednesday’s close. October futures finished 5.8 cents lower at $9.170.

At A Glance:

  • Futures price action Storage data portends grim pre-winter levels
  • Cooler weather may ease power burns
  • Canadian cash deeper into negative territory

Spot gas action was less chaotic, with the majority of North American locations slipping day/day. NGI’s Spot Gas National Avg. dropped 16.0 cents to $8.890.

After some positioning ahead of Thursday’s government inventory report along with profit-taking, bulls were ready to reclaim control of the market early. Staring down what many expected to be a below-normal storage injection, traders pushed the September Nymex contract up around a dime day/day in the minutes leading up to the Energy Information Administration’s (EIA) weekly inventory report.

Based on wide-ranging estimates ahead of the published data, the market didn’t appear to have a firm grasp on how much gas was injected, given light wind and fluctuating production during the reference period.

Reuters polled 12 analysts, whose estimates ranged from injections of 22 Bcf to 45 Bcf, with a median forecast of 32 Bcf. A smaller survey by Bloomberg produced a slightly tighter range of projections, with a median build of 33 Bcf.

EIA recorded a build of 46 Bcf during the same week a year ago, while the five-year average injection is 47 Bcf.

Instead, the EIA’s reported injection was a paltry 18 Bcf that barely moved the needle in closing the cap to historical levels.

“That was out of left field,” said Enelyst managing director Het Shah of the lower-than-expected storage injection.

Participants on the Enelyst online platform attributed the miss to lower wind generation during the reference week. Shah said data showed wind generation averaging 32 GWh for the week, about 10 GWh below the prior week.

Other Enelyst participants pointed to struggling production, which has yet to sustain recent highs because of pipeline maintenance. School also resumed in parts of the Lower 48, which likely boosted demand.

Regardless of the reason, price action was swift. The September Nymex contract shot up to $9.663 within minutes of the EIA report. From there, it met the same strong resistance that has prevented prices from climbing toward the double-digit mark on a few different occasions in recent weeks.

“The market is puking right now,” said an Enelyst participant about price action around 45 minutes after the EIA storage report.

Some market observers noted that with prices plunging so quickly after the initial surge, it appeared that a low-side injection was already priced into the market. Others put the blame squarely on algorithmic traders.

“The question is, what’s next?” asked one.

Given the puny uplift to storage, some of the Enelyst participants lowered their expectations for the end of the injection season to around 3.3 Tcf, from 3.4 Tcf. That said, NatGasWeather’s Lovern viewed the current week as looser, “but not exactly ‘bearish.’”

Broken down by region, the Midwest was the only region to record a double-digit increase in storage, rising by 21 Bcf, according to EIA. The East added 7 Bcf to storage, and the Mountain added 3 Bcf. Pacific stocks slipped by 4 Bcf, while the South Central dropped by 8 Bcf. The decline was solely in salt inventories. Nonsalts saw no change on the week.

Total working gas in storage as of Aug. 12 stood at 2,519 Bcf, which is 296 Bcf below year-earlier levels and 367 Bcf below the five-year average, EIA said.

With September prices hitting a wall of around $9.50, the market may “need some extra ammo, I suppose,” Lovern said.

Cash Backs Off Highs

Spot gas prices buckled Thursday as comfortable temperatures blanketed much of the interior United States. Heavy rains and strong winds associated with a tropical wave over northern Guatemala and southeastern New Mexico also may impact the Gulf Coast.

The National Hurricane Center said the system Thursday afternoon was better organized and was forecast to emerge into the Bay of Campeche on Friday, where an area of low pressure could form. After that, slow development is possible while the system moves northwestward over the southwestern Gulf of Mexico, according to NHC. The system should move inland over northeastern Mexico by late Saturday, with a 30% chance of formation through Tuesday.

With cloud cover and rain in the forecast for the Texas coast, spot gas prices at most locations fell Thursday. Tennessee Zone 0 North cash was down 17.5 cents day/day to $8.630, while Waha dropped 26.0 cents to $8.335.

Prices fell throughout the country’s midsection. Chicago Citygates spot gas slid 20.5 cents to $8.690, and ANR SW slipped 18.0 cents to $8.540.

Similar losses were seen throughout Louisiana and the Southeast, while locations in Appalachia and the East Coast landed in the black. Texas Eastern M-3, Delivery cash climbed 17.5 cents to $8.540, and PNGTS jumped 76.0 cents to $10.260.

Across the border in Canada, prices at Westcoast Station 2 continued to weaken amid downstream pipeline maintenance that was leaving gas stranded in the region.

Westcoast Station 2 next-day gas plunged 38.0 cents day/day to average minus 49.0 cents for Friday delivery amid an ongoing force majeure at Gas Transmission Northwest (GTN).

A GTN notice indicated that an unexpected compressor station failure occurred earlier this month at Station 3 Unit B. The force majeure was impacting all gas transactions at the Flow Past Kingsgate location. GTN said available capacity would be capped at 2,003 MMcf/d.