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James Hyerczyk

Natural gas prices are slightly lower on Tuesday after yesterday’s small gain helped bring an end to a three-day losing streak. The focus remains on whether there will be an uptick in demand as the country opens up from restrictions and lockdowns. Traders are also hoping production cuts would start to impact price positively. With that in mind, the weather models are hinting at what could be a warmer-than-normal summer, according to Natural Gas Intelligence (NGI).

At 11:52 GMT, July Natural Gas is trading $2.082, down 0.003 or -0.14%.

Short-Term Weather Outlook

NGI reports that after what is likely the last cold shot now exiting the eastern United States, warmer weather is set to emerge in the coming weeks, quickly dropping late-season heating degree days from outlooks, according to Bespoke Weather Services. The firm sees above-normal temperatures setting up as soon as the six- to 15-day timeframe, which it believes could be the pattern that sets up “more often than not” this summer.

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US Energy Information Administration Weekly Storage Report

The EIA last Thursday reported a 109 Bcf storage injection for the week-ending May 1, on the upper end of the estimates. This compares with the 96 Bcf increase in storage recorded by the EIA in the same week last year and the five-year average build of 74 Bcf for that week.

Total stocks now stand at 2.319 trillion cubic feet, up 796 billion cubic feet from a year ago, and 395 billion cubic feet above the five-year average, the government said.

U.S. Drillers Cut Oil & Gas Rigs to Historic Low – Baker Hughes

The number of operating oil and natural gas rigs fell to an all-time low – reflecting data going back 80 years – as the energy industry slashes output and spending to deal with the coronavirus-led crash in fuel demand.

The rig count, an early indicator of future output, fell by 34 to a record low of 374 in the week to May 8, according to data on Friday from energy services firm Banker Hughes Co going back to 1940.

Daily Forecast

Prices could firm this week if more states begin to ease restrictions and lockdowns. We may not see much movement in the nearby futures contracts, but deferred futures contract traders will certainly react to signs of lower production. While both the nearby and deferred contracts may rally this week, the biggest gains are likely to take place in the further out contracts.

An early view of this week’s government storage report points to another triple-digit build.

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