Natural Gas: Weather Outlook

Natural gas futures declined along with global energy commodities over the past two sessions as traders consider a shift in the weather outlook which has added to the downward pressure on natural gas. The August Nymex contract fell 4.1 cents day on day and settled at $3.596/MMBtu.​

​Gas-Weighted Degree Day

Bespoke Weather Services said its outlook updated Wednesday showed a decline in gas-weighted degree day (GWDD) expectations. The forecast pointed to modestly lower projected demand over the remainder of the trading week, however, forecaster have that  strong heat continues to permeate much of the Lower 48. At this point, the 15-day forecast as a whole is just a few GWDD over the five-year normal so the weather pattern right now is fairly neutral. Having said that, the East continues to see occasional strong spikes of heat, while the South, especially Texas, is not seeing anomalous heat.

The National Weather Service data showed hot high pressure over the East Coast with highs in the 90s across several major markets, including Philadelphia and New York City. Even more intense heat scorched the West and Southwest with highs ranging from the 90s to well above 100. However, heavy rains over parts of Texas dampened demand and there was more rain on the radar for Thursday. A separate weather system is expected to move into the Great Lakes and farther east Thursday, bringing comfortable temperatures in the 60s and 70s.

Storm Elsa

According to the National Hurricane Center (NHC), tropical storm Elsa has been lashing western Florida on Wednesday with heavy rains and sustained winds of 65 mph along the state’s northern Gulf Coast.  The storm is expected to turn north-northeast and move up the coast Thursday toward Georgia and South Carolina. The impact of the storm is expected to prove modestly bearish for gas prices.

The risk to production is looking minimal and pipelines in Elsa’s path have not posted any notices related to the storm as trading got underway Wednesday, according to analysts. There isn't any major production in or around the projected path and the storm missed the producing areas of the Gulf of Mexico according to analyst.

​Natural Gas Production

Production on Wednesday held slightly above 90 Bcf, which is off recent highs around 92 Bcf. This was offset, however, by lower LNG volumes. LNG feed gas levels on Wednesday hovered around 10.9 Bcf, according to estimates, down a tick from the previous day. It was also below the 11-plus Bcf threshold that had effectively become the norm over the spring and early summer amid robust demand for U.S. exports from Europe and Asia.

The European natural gas market has seen the storage deficit versus the five-year average grow to 660 Bcf, which is up approximately 100 Bcf over the past month. With supplies tight and prices in Europe notably higher than in the United States, natural gas futures will need to gain more than $5/MMBtu for economics to lead to shut-ins of U.S. LNG exports.

U.S. Energy Information Administration

Attention is now turning to Thursday U.S. Energy Information Administration (EIA) natural gas inventory report. Ahead of the report, covering the week ended July 2, most estimates were running notably below the five-year average for this time of year. Injection estimates in a Bloomberg poll landed a median of 29 Bcf. Predictions ranged from 19 Bcf to 47 Bcf. Results of a Reuters survey, meanwhile, ranged from injections of 22 Bcf to 64 Bcf, with a median build of 29 Bcf. NGI’s model predicted a 28 Bcf build, which would come in well below both the 57 Bcf year-ago injection and the five-year average build of 63 Bcf.

Weather Outlook

Looking to next week, forecasts show highs in the 90s or above for much of the Lower 48, indicating strong national demand ahead. This includes early peaks above normal levels with low to mid-100s in Salt Lake City and Sacramento and low 110s in Las Vegas, accroding to forecasters. They also expect sustained heat in the East in mid-July.