Natural Gas Price Drops Below $3 ‘Amid Lack of Support’

In an EBW Analytics Group report sent to Rigzone by the EBW team today, Eli Rubin, an energy analyst at the company, outlined that the natural gas price dropped below $3 per million British thermal units (MMBtu) yesterday “amid [a] lack of support”.

The report highlighted that the September natural gas contract closed at $2.932 per MMBtu on Monday. It pointed out that this was a 15.1 cent, or 4.9 percent, drop from Friday’s close.

“The September natural gas contract tested as low as $2.895 [per MMBtu] yesterday due to a distinct lack of bullish catalysts,” Rubin noted in the report, adding that Henry Hub physical pricing cleared at $2.87 per MMBtu.

“Bearish catalysts continue to cast a cloud over NYMEX gas futures, including incredibly mild weather, strong production, underperforming LNG, and bearish technicals,” Rubin said in the report.

“Further, higher-level impediments of ample storage surpluses and weak Henry Hub cash markets provide shorts with protection to be more aggressive,” he added.

Rubin noted in the report that “a return to summerlike weather into Week 2 may add 28 CDDs [cooling degree days] week over week” but added that “heat remains biased away from the demand-driving Southeast and South Central”.

“LNG may trend higher. Still, until visible inroads into the storage surplus emerge (likely not until the 30-45 day window), sustainable fundamental bullish catalysts may remain scarce, even if a subdued storage trajectory eventually prompts a recovery,” Rubin went on to state in the report.

In an EBW report sent to Rigzone by the EBW team on Monday, Rubin said the September natural gas contract “continued to search for direction, as Friday’s attempt to rebound was repelled by bears and bulls defended the $3.00 per MMBtu psychological level”.

That report highlighted that the September natural gas contract closed at $3.083 per MMBtu on Friday. It pointed out that this was a 2.3 cent, or 0.7 percent drop from Thursday’s close.

“Despite very mild weather, weak LNG feedgas, bearish technicals and a bearish EIA [U.S. Energy Information Administration] storage surprise, shorts failed to press the advantage last week as Henry Hub spot prices traded at $2.99 [per MMBtu] for the weekend,” Rubin said in that report.

“Still, production readings remain strong, storage surpluses may surpass 200 billion cubic feet above five-year norms into early August, and excess South Central salt storage stands ready to sell into any late-summer rally. Although not featuring a direct threat to Gulf Coast, the tropics are beginning to awaken seasonally,” he added.

In that report, Rubin warned that “bullish sprouts may take time to develop” and said “the aforementioned bearish factors may continue to suppress any near-term fundamental upside”.

In its latest weekly natural gas storage report at the time of writing, which was released on July 31 and included data for the week ending July 25, the EIA said working gas in storage was 3,123 billion cubic feet as of July 25, according to its estimates.

“This represents a net increase of 48 billion cubic feet from the previous week,” the EIA noted in that report.

“Stocks were 123 billion cubic feet less than last year at this time and 195 billion cubic feet above the five-year average of 2,928 billion cubic feet. At 3,123 billion cubic feet, total working gas is within the five-year historical range,” it added.

EBW Analytics Group provides independent expert analysis of natural gas, electricity, and crude oil markets, the company’s site states.

Rubin is an expert in econometrics, statistics, microeconomics, and energy-related public policy, the site adds, noting that he is “instrumental in designing the algorithms used in our models, and in assessing the potential discrepancies between theoretical and practical market effects of models and historical results”.

To contact the author, email andreas.exarheas@rigzone.com