Henry Hub gas futures hold early August increases as US market fundamentals tighten

NYMEX prompt-month natural gas futures prices held on to prior-week increases in Aug. 12 trading amid growing signs that recent cuts to US gas production are beginning to tighten domestic market supply.

In morning trading, the Henry Hub prompt-month futures contract climbed to its highest since early July, changing hands at just over $2.25/MMBtu. By mid-session, September gas prices had retreated, but continued to trade rangebound from about $2.15-$2.20, data from CME Group showed.

Over the past week, prompt-month futures rose roughly 30 cents, or more than 15%, rebounding from lows at under $1.90 in early August, according to S&P Global Commodity Insights data.

The rebound in prices comes amid what appears to be an enduring cut to US gas production this month. After reaching a 22-week high at nearly 104 Bcf/d in late July, domestic output has fallen rapidly since, dropping to an average of 101.6 Bcf/d over the past week, Commodity Insights data shows.

Curtailments

On recent second-quarter earnings calls, some of the largest public US gas producers previewed the decline in output with commitments to slow drilling and completion activity and/or turn-in-lines.

The renewed commitment from producers to slow output has likely added to the market's growing confidence that recent declines in gas production are here to stay – at least over the near term.

In late July, EQT(opens in a new tab) was among the first to announce a renewed commitment to slow output, saying it expects to continue curtailing an average of 500 MMcf/d over the balance of 2024.

On its own quarterly earnings call in early August, Coterra Energy(opens in a new tab), another large acreage holder in Pennsylvania, also promised to curtail a net 275 MMcf/d of its Marcellus production that's exposed to in-basin prices. Other producers, including Chesapeake Energy, CNX Resources and Ascent Resources, have also committed to hold back output in response to the weak pricing environment.

Tighter supply

Continued support for prompt-month gas prices also comes as recent production curtailments begin taking their toll on the spot market, lifting Henry Hub cash prices and cutting the size of storage injections.

On Aug. 12, benchmark Henry Hub gas increased nearly 20 cents from its Aug. 9 assessment price to settle at $2.145/MMBtu, its highest since mid-July, Platts preliminary settlement data showed. Platts is part of S&P Global Commodity Insights.

According to market analysts, the recent tightening in US supply is also likely to keep downward pressure on the US gas storage surplus. For the week ended Aug. 9, at least some market observers are expecting the US Energy Information Administration to announce a rare August withdrawal from inventory.

The latest gas supply-demand and storage modeling from Commodity Insights is now predicting a drawdown ranging in size from 2 Bcf to as much as 11 Bcf.

According to the Early View, gas storage survey conducted by The Desk at Scudder Publishing Group, the latest consensus among market analysts, is that the EIA will report an injection of just 1 Bcf for the week ended Aug. 9. Current predictions compare with a five-year average injection of 43 Bcf and a year-ago build of 33 Bcf, data from the agency showed.