Home Natural Gas Natural Gas Futures Called Lower as Weather-Driven Demand to ‘Drop Precipitously’

Natural Gas Futures Called Lower as Weather-Driven Demand to ‘Drop Precipitously’

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With weather-driven demand expected to decline on warming temperatures later this week, and with inventories expected to fill quickly in the weeks ahead, natural gas futures were down in early trading Tuesday. The June Nymex contract was off 2.9 cents to $1.797/MMBtu at around 8:40 a.m. ET.

There were no major changes in the overnight weather data, with the models still showing colder temperatures over the Midwest and Northeast for the next few days, according to NatGasWeather.

This will be “followed by warming across the northern U.S. to the perfect 70s to lower 80s from Chicago to New York City,” the forecaster said. “As the northern U.S. becomes ideal with very light demand after the early week cool shot, the southern U.S. will become very warm to hot as high pressure strengthens. This will bring an increase in coverage of mid-80s to low 90s from Texas to the Mid-Atlantic coast, but still not quite hot enough to intimidate.”

Absent more heat in the pattern, the markets are likely to consider the outlook for the next 15 days as “not quite hot enough,” according to NatGasWeather.

“Also of considerable importance, natural gas production will need to decline further to offset demand destruction in the commercial and industrial sectors from Covid-19,” the forecaster said. “As such, until more impressive summer heat arrives, hefty builds should be expected.”

Looking ahead to Thursday’s Energy Information Administration (EIA) storage report, Energy Aspects issued a preliminary estimate for a 112 Bcf injection for the week ending May 8.

“Despite a 3.1 Bcf/d week/week decline in production, the projected week/week demand decline is likely to offset that and then some,” the firm said. “We project residential/commercial demand to be down by 3.5 Bcf/d” for the upcoming EIA report period. Energy Aspects is estimating a 0.3 Bcf/d drop-off in demand from exports during the period, which includes exports to Mexico and via liquefied natural gas.

The June contract traded as high as $1.890 in Monday’s session but ultimately failed to push higher, falling back to settle at $1.826.

“Just as occurred last week…there were not enough buyers interested in taking long positions to sustain the rally,” analysts at EBW Analytics Group said. “By the time trading ended, the June contract gave back nearly all of its gains, ending the day just three ticks above Friday’s close.

“Absent a sudden major weather shift, there appears to be little to sustain natural gas prices at Monday’s levels. Weather-driven demand is expected to drop precipitously later this week and storage is on an unsustainable trajectory…We continue to expect prices for the near-month futures contracts to decline further before the end of the week.”

June crude oil futures were trading $1.26 higher at $25.40/bbl at around 8:40 a.m. ET, while June RBOB gasoline was up fractionally to around 92.9 cents/gal.

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