Natural gas futures on Friday fell a second consecutive day and for the fourth time in a dismal week for bulls. Elusive demand – both domestic weather-driven consumption and lower calls for LNG – intersected with strong production levels to keep prices in check.

The June Nymex gas futures contract dropped 12.6 cents day/day and settled at $2.181/MMBtu on Friday before rolling off the books as the prompt month. July, which takes over at the front of the curve on Tuesday, fell 5.9 cents to $2.417. The June contract lost ground in five of its final six sessions.

Under pressure through most of the week, NGI’s Spot Gas National Avg. shed another 26.5 cents on Friday to $1.580. Spot gas traded Friday was for delivery May 27-30 because of the Memorial Day holiday on Monday.

Production on Friday topped 100 Bcf/d, within about 2 Bcf/d of record levels. It held around the century market throughout a week in which demand proved consistently soft amid pristine spring weather across much of the Lower 48.

National Weather Service (NWS) data on Friday showed highs ranging from the 60s to the 80s throughout the northern half of the country. Large swaths of the South saw highs in the 70s and 80s, with higher temperatures mostly isolated to the Southwest deserts and far southern markets. NWS forecasts called for more of the same in the week ahead and through the first half of June, though pockets of heat were expected to gradually expand in the second week of next month.

The forecasts would extend a trend that endured throughout the spring. “Up until this point, the season has been a horror show for bulls,” analysts at The Schork Report said.

Additionally, liquefied natural gas demand was off between 1-2 Bcf/d from spring highs during the past week – and much of May — amid maintenance work at LNG export facilities along the Gulf Coast.

A stalemate between Republicans and Democrats in the federal debt ceiling debate, meanwhile, carried through trading Friday.

Treasury Secretary Janet Yellen recently sounded alarms and said that, without a resolution to raise the debt limit by June 1, the federal government could default on portions of its obligations. This could send already high borrowing costs soaring – interest rates are rising in response to lofty inflation — crippling the economy and, by extension, demand for energy. Industrial consumption typically falters during recessions. This amplified bearish sentiment in natural gas markets during the week, analysts said.

Rystad Energy analyst Matthew Fitzsimmons said U.S. manufacturing activity already is slowing and appears increasingly vulnerable amid stubbornly high inflation. A case in point: In absolute dollar terms, new orders of U.S.-made oil and gas field machinery in the first quarter of this year topped $1.7 billion per month – the highest since the second quarter of 2015. 

“When adjusted for inflation, however, they are below new orders in the first quarter of 2020 before the onset of the pandemic late in that quarter,” Fitzsimmons said.

Stout Storage Supplies

Supplies in storage, meanwhile, continue to track well above historic norms, feeding supply/demand imbalance concerns.

The U.S. Energy Information Administration’s (EIA) on Thursday reported an injection of 96 Bcf natural gas into storage for the week ended May 19. The build lifted inventories to 2,336 Bcf and put stocks above the year-earlier level of 1,807 Bcf and the five-year average of 1,996 Bcf.

The print implied the market was 1.8 Bcf/d tighter than the week-earlier result when compared to degree days and normal seasonality, according to Wood Mackenzie analyst Eric McGuire. But he chalked this up largely to temporarily weak wind generation during the latest covered week, as opposed to the onset of a sustained increase in natural gas consumption to cool homes.

Tudor, Pickering, Holt & Co. analyst Matt Murphy estimated that total production during the May 19 period averaged 101 Bcf/d. He cited increased activity in the Marcellus Shale and higher output in Western Canada as producers resumed work following wildfire-induced pauses earlier in May.

“Canadian imports rebounded through the week from 3.8 Bcf/d to 5.5 Bcf/d, a level not seen since May 5, as the impacts of Alberta wildfires eased,” Murphy said. “On the demand side, gas’ share of thermal generation remained in the 73% range for the week despite wind generation slightly softening.”

Looking ahead, early storage estimates for the week ending May 26 submitted to Reuters ranged from injections of 102 Bcf to 124 Bcf, with an average increase of 107 Bcf. The average estimate compares with an actual increase of 82 Bcf a year earlier and a five-year average of 101 Bcf.

Fragile Physical Markets

Spot gas prices continued to trend lower Friday amid the anemic weather-driven demand.

The outlook favors bears, NatGasWeather meteorologist Rhett Milne said. “There’s not much to say” about the week ahead “except very nice conditions over most of the U.S. for light demand.”

If “there were to be hotter trends, stronger LNG exports and/or declines in production, it could lead to a reaction higher,” Milne added. But “the failure for heat to show up” in forecasts is “likely to lead to further disappointment” for bulls.

Against that backdrop, Houston Ship Channel lost 37.5 cents day/day to average $1.770, while Chicago Citygate dropped 28.5 cents to $1.660 and Florida Gas Zone 3 fell 19.5 cents to $1.940.

Analyst John Abeln of Refinitiv said on the online energy platform Enelyst that, looking toward late June and through August, long-range forecasts show “pretty consistently hot” conditions spanning the Lower 48. Average temperatures are likely to be above normal relative to 30-year averages.

However, he said that, when compared to the averages of the past 10 years, conditions could prove less impressive and may merely align with the conditions Americans have grown accustomed to in that span – hot, often dry summers.

What’s more, relative to the past decade, “the belt of East Coast cities stretching from Connecticut all the way to Charlotte is actually looking at weather colder than the norm,” Abeln said. Refinitiv’s outlook also shows “colder-than-usual weather predicted for the vast majority of California.”

Prices declined across California on Friday. SoCal Border Avg. slipped 27.0 cents to $1.505, and Southern Border, PG&E shed 27.0 cents to $1.485.

Bulls looking for outsized hurricane activity to interrupt production and bolster prices may also be disappointed. The National Oceanic and Atmospheric Administration (NOAA) said it forecasts 12 to 17 total named storms during the Atlantic hurricane season that officially begins June 1. Five to nine storms are likely to become hurricanes and one to four could be major systems, NOAA said.

Last year, 17 named storms were identified. An average Atlantic season produces 14 storms.

“After three hurricane seasons with La Nina present, NOAA scientists predict a high potential for El Nino to develop this summer, which can suppress Atlantic hurricane activity,” the administration’s meteorologists said.