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James Hyerczyk

Natural gas futures posted a two-sided trade last week before posting a small loss. The market rallied early in the week ahead of the May expiration, but this move failed to attract enough buyers to sustain the move. Prices fell late in the week after the release of the weekly government storage report. Some of the weakness was fueled by spot gas declines

Last week, June natural gas futures settled at $1.890, down $0.005 or -0.26%.

Short-Term Weather Outlook

According to NatGasWeather for May 1 to May 7, “Slightly cool conditions with highs of 50s to 70s linger in the wake of an exiting weather system over the East. The South and Southeast will be near ideal with highs of 70s to mid-80s, while the Southwest into West Texas remains hot with 90s and 100s. This weekend will warm into the upper 60s to 70s from Chicago to NYC for light demand, although remaining hot over the Southwest. Cooler air will spread across much of the U.S. next week with highs of 50s to 70s across the northern U.S. and comfortable 70s and 80s from Texas to the Mid-Atlantic Coast. Overall demand will be low becoming moderate next week.

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US Energy Information Administration Weekly Storage Report

The U.S. EIA reported last Thursday that domestic supplies of natural gas rose by 70 billion cubic feet (Bcf) for the week-ended April 24. That was in line with average expectations.

Total stocks now stand at 2.210 trillion cubic feet, up 783 billion cubic feet from a year ago, and 360 billion feet above the five-year average, the government said.

Natural Gas Rig Count Drops

The U.S. natural gas rig count dropped four units to fall to 81 during the week-ended Friday May 1, while aggressive retrenchment remained the dominant theme in the oil patch, according to data from Baker Hughes Co.

Weekly Forecast

The focus for traders continues to be on the spread between the nearby and deferred futures contracts. Last week, June forward prices fell an average of only 6.0 cents, while the balance of summer (June-October) dropped an average of 4.0 cents, according to NGI’s Forward Look.

The back of the curve continued to be supported by an expected pullback in production, with small gains seen beginning next winter and extending through calendar year strips, NGI’s Forward data showed.

The catalyst behind the heightened volatility in the near-term futures contract is the extensive demand destruction from the coronavirus pandemic. Demand destruction should keep a lid on prices, while worries over production could provide support.

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