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James Hyerczyk
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Natural Gas

Natural gas futures fell on Friday as investors booked profits ahead of the weekend on fresh uncertainty generated by the latest weather patterns. Rather than guess at the weekend results, traders decided to take to the sidelines instead of risking a potential gap lower opening on Monday if the weekend weather came in milder than expected. According to Natural Gas Intelligence (NGI), traders were focused on a near-term shift in weather that is expected to usher in a reprieve from the oppressive heat that has defined the summer to date over much of the Lower 48.

On Friday, September natural gas futures settled at $3.914, down $0.145 or -3.57%.

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NatGasWeather Short-Term Outlook

“National demand will ease to much lighter levels” over the coming week “as weather systems sweep across much of the eastern half of the U.S. with highs of upper 60s to lower 80s,” NatGasWeather said. The firm projected the coolest conditions across the Great Lakes and Northeast. “It will still be hot next week over the West and Plains, including much of Texas, but not enough to counter” the comfortable conditions in the East.

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Higher Production Coming?

NGI is reporting that Texas Eastern Transmission Co. (Tetco) notified shippers ahead of trading Friday that it had received approval from federal regulators to return its 30-inch diameter system to full operating pressure, with capacity expected to increase by roughly 0.5 Bcf/d starting in the coming week.

Bespoke Weather Services said this would “have some impact on Henry Hub pricing specifically.” However, the firm doesn’t see the restored capacity “significantly affecting the supply/demand balance,” and it anticipates a return of upward pressure on prices in August.

“Production estimates held around 91.5 Bcf on Friday, shy of the 93 Bcf or higher that Bespoke has said may be needed to keep pace with demand that has been driven by both domestic cooling needs – particularly in the drought-stricken West – and robust levels of liquefied natural gas (LNG) activity. LNG feed gas volumes consistently approached 11 Bcf over the past week, putting export activity near capacity levels,” NGI wrote.

Short-Term Outlook

Although prices struggled last week, it’s not always about heat driven rallies in the summer. Most professionals put the emphasis on low supply heading into winter. If the U.S. starts the winter heating season under supplied then prices are likely to soar if it gets extremely cold.

As far as the summer heat is concerned, sure prices rise when there is intense heat, but production between the end of summer and the start of winter can help increase supply. This is why cold weather rallies are often the most dramatic if the heating season starts undersupplied.

For a look at all of today’s economic events, check out our economic calendar.
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