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James Hyerczyk
Natural Gas

Natural gas futures closed lower on Friday, reversing earlier gains, as U.S. energy companies began to assess the damage to off shore gas production facilities in the Gulf of Mexico, in the wake of the passing of a major hurricane, according to data released by the U.S. Department of Interior.

The data showed natural gas production was down 59%, or 1.6 billion cubic feet per day. U.S. Gulf of Mexico offshore wells account for 5% of total U.S. natural gas production.

On Friday, October natural gas futures settled at $2.657, down $0.053 or -1.96%.

Hurricane Laura tore through Louisiana on Thursday, killing six people and flattening buildings across a wide watch of the state before moving into Arkansas with heavy rains.

Laura caused less mayhem than forecasts predicted – but officials said it remained a dangerous storm and that it would take days to assess the damage. At least 867,000 homes and businesses in Louisiana, Texas and Arkansas remained without power on Thursday afternoon.

Laura was downgraded to a tropical depression by the NHC at 02:00 GMT, and the forecaster said it will move to the mid-Mississippi Valley later on Friday and then to the mid-Atlantic states on Saturday.

Cooler Weather Outlook Encourages Profit-Taking

Friday’s price action suggests that weather will remain at the forefront. The latest weather outlooks indicated that Friday’s temperatures may have been the hottest day remaining this summer. Bespoke Weather Services said demand could fluctuate between normal and “somewhat above normal” heading into the first half of September. This is a little cooler than what forecasts had been suggesting even a few days ago, with all guidance pointing to cooler weather in the central United States and heat mostly back West.

“This looks similar to what we have seen this month as well, spatially, although this month wound up another hot one, as western heat overwhelmed any cooling farther east,” Bespoke said. “It is not the ‘typical’ La Nina pattern, however, which may be the atmosphere’s way of suggesting this indeed will be a weak La Nina heading into the cold season.”

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Short-Term Negatives Adding Up

Hurricane Laura caused extensive power outages and brought with it cooler temperatures so Friday’s late session weakness was not really a surprise. More importantly, the storm brought liquefied natural gas (LNG) demand to a stunning halt. According to reports, both the Sabine Pass and Cameron export terminals shut down operations before Laura washed ashore.

Although pipeline notices indicated remanning efforts would be underway beginning Friday, the speed of the LNG recovery is more uncertain, according to NatGasWeather.

Natural Gas Intelligence (NGI) data showed feed gas deliveries at around 2.8 Bcf/d for Friday, which is up from the 2.3 Bcf/d low recorded on Wednesday, but sharply off the 5.0 Bcf/d highs seen the previous week.

Short-Term Outlook

Although prices closed lower on Friday, the futures market put in a strong weekly performance. LNG production and demand may be down because of the storm, but this is likely to be a short-term matter. We expect LNG demand to bounce back relatively quickly and rise into the fall season. This is likely to underpin prices or at least encourage buyers to come in on breaks. Meanwhile, the high storage at this point in the injection season remains a concern that could lead to limited gains.

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

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