The Energy Buyer's Guide | 09.09.2024
Natural gas futures rebound surrounding bullish storage report.
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- Natural gas pricing was higher last week, propelled by a smaller-than-expected storage build announced on Thursday.
- Spot power and gas pricing pushed higher in the West amid hot weather conditions, while the rest of the country saw lower pricing; temperatures are expected to warm in the East and cool in the West in the 6-10-day period.
- The Matterhorn Express Pipeline began flowing small volumes of natural gas east across Texas, which should eventually provide some relief to negative Permian Basin pricing. (Link)
- ERCOT forward power prices declined last week, as that market continues to shed the historic premium that was embedded into the curve ahead of the summer.
Natural gas futures recovered last week, with the prompt-month contract gaining $0.15 per MMBtu to finish near the top of its recent trading range. Friday’s intraday high of $2.293 per MMBtu was the highest tick for a prompt-month contract since August 15 and put benchmark pricing at odds with demonstrated resistance surrounding $2.30 per MMBtu that has been in place since July. As long as resistance continues to hold, the market’s technical momentum will remain in neutral territory, but a breach could bring follow-through buying interest into the fray. Winter 2024-25 finished the previous week just below $3.00 per MMBtu, but support ultimately held, with that strip posting modest gains on the week to return back above that psychological benchmark.
The main catalyst that sparked last week’s gains was the Thursday storage report that showed a smaller-than-expected build of 13 Bcf into underground inventories. This was another build indicating that the actual fundamental balance might be tighter than implied by industry supply and demand estimates. This has been the case with a handful of storage reports this summer, which could be a sign that actual supply has been lighter than estimated or demand stronger. The seasonal storage build to date of 1,088 Bcf is the lightest since 2016 and the third lowest since 2010. Although inventories are on pace to go into the winter at generally healthy levels, a tighter fundamental balance would mean elevated underlying risk. This would place a greater burden on domestic supply, which is currently losing ground to year-ago levels as producers continue to curtail output in response to low market pricing. Time will tell whether the contango in the forward curve will provide ample incentive to ramp up output by the end of the year, but if production remains at or near current levels entering peak heating season, market sentiment could quickly turn bullish.
