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Natural-gas futures rallied on Thursday to post their highest finish since late 2018, as a smaller-than-expected weekly rise in U.S. supplies of the fuel fed concerns over tight supplies and a storm system looked to threaten energy operations in the Gulf of Mexico.
Crude oil futures, meanwhile, settled lower, taking a breather after three consecutive winning sessions, with investors assessing the outlook for demand ahead of the end of summer driving season in the U.S.
“The natural gas run is a combination of expected production impacts from the storm, but more so about the much lower than normal storage injection which has really added to fears of start of winter storage levels being as low as 3.5 trillion cubic feet,” Gary Cunningham, director of market research at Tradition Energy, told MarketWatch.
Natural-gas prices saw a boost immediately after U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas rose by 29 billion cubic feet to 2.851 trillion cubic feet for the week ended Aug. 20. That was smaller than the average increase of 37 billion cubic feet expected by analysts polled by S&P Global Platts.
September natural gas
NGU21,
rose 29 cents, or 7.4%, to settle at $4.18 per million British thermal units, ahead of its expiration at the end of Friday’s trading session.
That was the highest front-month contract finish since December 2018, and largest one-day percentage gain since February of this year, according to Dow Jones Market Data.
A natural-gas powder keg “just exploded,” said Phil Flynn, senior market analyst at The Price Futures Group. “Not only did the EIA weekly inventory miss by a wide margin, you have the threat of hurricanes in the Gulf of Mexico shutting down even more production.”
Natural-gas supplies are already too far below the five-year average and with the “lack of U.S. production and strong global demand, it is unlikely that we’re going to go into this winter with adequate supplies to avoid price spikes during cold snaps,” Flynn told MarketWatch.
A storm in the Atlantic, dubbed Tropical Depression Nine, is expected to strengthen, entering the Gulf of Mexico Friday night and approaching the U.S. northern Gulf Coast on Sunday, according to the National Hurricane Center. The storm has the potential to disrupt oil and natural-gas operations in the region.
“Depending on the severity of the storm and where it hits, although offshore natural gas production would likely decline” between one and two billion cubic feet per day, said Christin Redmond, commodity analyst at Schneider Electric.
However, nearly 10 billion cubic feet a day of liquid natural gas export infrastructure is located on the coast of Louisiana and Texas, so “if several of the export facilities are affected, demand could decline by a larger amount than supply,” she said in a daily report.
Meanwhile, crude oil is “being pulled back by lingering fears of the delta variant,” said Tradition Energy’s Cunningham.
“Oil gained earlier in the week as it appeared things would be OK, and on news that some global jet-fuel demands were increasing, but it was over bought and is giving some of the gains back,” he said.
West Texas Intermediate crude for October delivery
CL00,
CLV21,
fell 94 cents, or 1.4%, to settle at $67.42 a barrel on the New York Mercantile Exchange. October Brent crude
BRN00,
BRNV21,
the global benchmark, declined $1.18, or 1.6%, to $71.07 a barrel on ICE Futures Europe. November Brent
BRNX21,
the most actively traded contract, was off $1.10, or 1.5%, to end at $70.18 a barrel.
Based on trading in the front-month contracts, WTI remains up nearly 9% for the week, while Brent is up over 9%.
“The state of the COVID-19 delta variant continues to inject uncertainty in the market,” said Robbie Fraser, global research & analytics manager at Schneider Electric, in a daily market update.
“On one hand, many countries continue to see record cases and potential travel restrictions,” but major economies like China and India have made “significant strides in reducing the number of delta-linked cases, with demand improvement set to follow,” he said.
As for the tropical depression in the U.S. Gulf, he warned that if a major storm hits refining infrastructure along the Texas coast, “the price impact, particularly to refined fuels in the U.S., can be significant.”
On Wednesday, weekly U.S. data showed a further decline in weekly U.S. crude inventories and a rise in implied demand for gasoline, leading to a rise in oil prices.
“Generally speaking, the ideal summer driving season should see refiners draw on crude-oil storage in an effort to satisfy gasoline demand without adding too much gasoline and killing the golden goose,” said Robert Yawger, executive director for energy futures at Mizuho, in a note.
Summer driving season in the U.S. is the period between the Memorial Day weekend in late May and Labor Day weekend. Labor Day this year falls on Sept. 6.
Among the petroleum products, September gasoline
RBU21,
lost 1.6% to nearly $2.26 a gallon and September heating oil
HOU21,
shed almost 1.7% to $2.08 a gallon.
