US natural gas futures edged up to fresh five-week highs on Wednesday on forecasts that continued to call for the weather to remain hotter than normal through late July and a slight decline in output over the past few days. That should keep the amount of gas power generators burn to run air conditioners on pace to break last July's record high, according to federal energy projections.
Front-month gas futures for August delivery on the New York Mercantile Exchange rose 1.9 cents, or 0.8%, to settle at $2.444 per million British thermal units, their highest close since May 31 for a second day in a row. The premium of August over September collapsed by 80% from 3.5 cents per mmBtu on Friday, its highest for the year, to less than a penny on Wednesday as later-dated futures have increased faster than the front-month.
Those later dated increases helped push calendar 2020 back to a premium over 2021 for the first time since the start of June. Calendar 2020 traded over 2021 from May 2018-May 2019. Before this week, traders said gas futures had mostly traded close to multi-year lows since the end of May as near-record production and moderate weather allowed utilities to inject huge amounts of gas into stockpiles, shrinking a massive storage deficit and removing any concerns about shortages next winter.
The amount of gas in storage has remained below the five-year average since September 2017. It peaked at 33% under the five-year average in March 2019. Analysts, however, forecast inventories will reach a near-normal 3.7 trillion cubic feet (tcf) by the end of the summer injection season at the end of October.
Data provider Refinitiv said output in the Lower 48 US states slipped to 89.6 billion cubic feet per day (bcfd) on Tuesday, its lowest in more than a week, from a record high of 91.1 bcfd on Friday. That compares with an average of 82.5 bcfd during this week last year.
With the weather expected to keep heating up, data provider Refinitiv projected demand would rise to 90.4 bcfd next week from 89.5 bcfd this week. That, however, is a little less than Refinitiv's forecast on Tuesday of 91.1 bcfd for next week.
Traders, however, noted the likely formation of a tropical depression in the Gulf of Mexico over the next 48 hours could reduce demand along the Gulf Coast and disrupt liquefied natural gas (LNG) exports. The National Hurricane Center said there was a 100% chance a low pressure system in the northeast Gulf of Mexico south of the Florida Panhandle would strengthen into a tropical depression as it moves toward the Texas-Louisiana border.
That storm would pass close to three of the nation's four operating LNG export terminals - Sempra Energy's Cameron in Louisiana and Cheniere Energy Inc's Sabine Pass in Louisiana and Corpus Christi in Texas.