Nat-Gas Surges Ahead of July Futures Expiration

July Nymex natural gas (NGN22) on Monday closed up +0.281 (+4.52%).

Nat-gas prices this morning rebounded from a new 2-1/2 month low and closed sharply higher.   A weaker dollar Monday sparked short covering in nat-gas futures ahead of the July nat-gas futures contract expiration on Tuesday.  A bearish factor for prices is the outlook for cooler U.S. temperatures, which will curb nat-gas demand from energy providers to power increased air-conditioning usage.  The Commodity Weather Group on Monday predicted cooler-than-normal temperatures in parts of the Northeast from July 2-6.

Nat-gas prices are being undercut by the outlook for rising U.S. nat-gas inventories due to reduced exports.  Freeport LNG, on June 17, declared force majeure on its LNG shipments loading from its fire-damage export plant until the first week of September.  The Freeport terminal on June 14 said that it is targeting 90 days for a partial restart, but a return to full operations isn't expected until later this year.  The 90-day timeline is much longer than the three weeks that were initially anticipated.  U.S. nat-gas inventories are likely to increase since exports will be limited.  The Freeport LNG terminal receives about 2 bcf, or 2.5%, of the output from the lower 48 U.S. states.  BNEF data shows LNG net flows to U.S. LNG export terminals Monday was 10.4 bcf, down -3.2% w/w.

Nat-gas prices have support after Russia recently said that foreign buyers of its gas would need to open special ruble and foreign currency accounts to buy Russian gas.  Russia has already halted nat-gas shipments to Demark, Finland, Bulgaria, the Netherlands, and Poland and reduced supplies to Germany for not paying for Russian gas in rubles.

Stronger U.S. nat-gas production is bearish for prices as BNEF data showed lower-48 dry gas production Monday at 96.2 bcf, up +2.4% y/y.

Near-normal temperatures in the U.S. have cut domestic demand for nat-gas to power air-conditioners.  Lower 48 state total gas demand on Monday was 66.9 bcf, up -1.8% y/y.

An increase in U.S. electricity output is bullish for nat-gas demand from utility providers.  The Edison Electric Institute reported last Wednesday that total U.S. electricity output in the week ended June 18 rose +6.0% y/y to 91,360 GWh (gigawatt hours).  Also, cumulative U.S. electricity output in the 52-week period ending June 18 rose +2.4% y/y to 4,096,486 GWh.

As a longer-term bullish factor, the ongoing drought in the U.S. West has drained rivers and reservoirs, with Lake Mead recently falling to a record low.  That threatens to curb power produced by hydropower dams and will prompt electric utilities in the U.S. West to boost usage of nat-gas to increase electricity to satisfy power demand for air-conditioning this summer.  The U.S. Energy Information Administration said on June 1 that the drought could drive down generation at California's hydro dams between June and September to 7 million megawatt-hours, well below the 13 million megawatt-hour median for summer generation between 1980 and 2020.

Last Thursday's weekly EIA report was bearish for nat-gas prices as it showed U.S. nat gas inventories rose +74 bcf to 2,169 bcf in the week ended June 17, above expectations of +62 bcf.  However, inventories remain tight and are down -12.6% y/y and -13.2% below their 5-year average.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ended June 24 rose +3 to a 2-3/4 year high of 157 rigs.  Active rigs have more than doubled from the record low of 68 rigs posted in July 2020 (data since 1987).
 

• Crude Climbs on Global Supply Concerns
• Nat-Gas Weighed Down by Rising U.S. Inventories
• Crude Rallies on a Weak Dollar and Reduced Recession Concerns
• Nat-Gas Plunges as Weekly EIA Inventories Climb More Than Expected