NYMEX natural gas futures tumble amid bearish weather, production data

NYMEX front-month natural gas futures May 31 picked up where they left off before the long holiday weekend by tumbling to start the abbreviated trading week.

At the end of trading, the NYMEX July 2022 gas futures contract lost 58.2 cents to close at $8.145/MMBtu. The downside action in prices stemmed from a bearish June temperature outlook according to one of the alternative weather forecast models, as well as dry gas production that inched higher in recent days, testing the 96 Bcf/d area.

While the two major weather forecast models, the Global Forecast System (GFS) and the European (ECMWF) models, continue to show a relatively neutral to slightly bullish outlook for the lower 48 states over the course of June, the Coupled Forecast System model version 2 (CFSv2) is depicting a notably cooler forecast for the month.

One model says cooler

Even though the CFSv2 isn't ranked as high as the GFS and ECMWF models in terms of industry standard usage, the CFSv2 does have a history of scoring coups against the major models in recent years. The most recent runs of the CFSv2 are showing a warm bias for the Southwest region of the US, while the rest of the nation, including the Northwest, the Great Plains (including Texas), and the near entirety of the remaining eastern third of the US is forecast to be quite cool by June standards. Only time will tell if this outlook verifies, but if the CFSv2 model is correct, much of the nation may be able to dodge an energy shortage bullet and would allow the gas storage deficit to be more quickly eaten away in the weeks ahead.

From the fundamental supply/demand perspective, lower 48 dry production levels are measuring between 95 Bcf/d and 96 Bcf/d for the final gas day of May, which is down by about 460 MMcf from the previous day. Texas and the Northeast regions are each down about 120 MMcf, while the Midcontinent, Southeast and Western regions are respectively down 82 MMcf, 66 MMcf, and 67 MMcf for May 31.

On the demand side of the spectrum, modestly above-average temperatures will remain around for another day or so, with lower 48 mercury levels averaging above 70 degrees. These conditions will remain steady for much of the week as climatological or seasonal historical averages edge higher. Demand levels for the first couple of days of June are estimated at more than 62 Bcf/d but then will ease to 60.5 Bcf/d over the latter part of the week. LNG feedgas was under 12 Bcf/d due to lower processed volumes at Sabine Pass.

Spot market

Over in the spot market, despite the losses in the NYMEX front-month gas futures contract, spot prices were generally higher across the nation for the June 1, 2022 flow date, thanks to warmer early summer temperatures in several regions of the country, which increased air conditioning loads.

Cash prices at the Henry Hub gained 19 cents to average $8.455/MMBtu, while the Houston Ship Channel inched up 4 cents to $8.11/MMBtu. In the Northeast, spot prices at Algonquin, city-gates, which serves the Boston market area, increased by 18.5 cents at $8.12/MMBtu, while Transco, zone 5 delivered, which gained 39.5 cents at $8.965/MMBtu. In the upper Midwest, spot prices in the windy city were up 29 cents at Chicago city-gates, which averaged $8.10/MMBtu. In the Rockies, Opal Plant Tailgate added 14.5 cents to average $8.045/MMBtu. In California, spot prices at SoCal Gas city-gate gained 49.5 cents to average $9.06/MMBtu, while SoCal Gas jumped 53.5 cents to $8.575/MMBtu.