Mother Nature Turning Up The Heat. Will It Save Natural Gas Prices?

After a recent cooler interlude in the weather pattern, things appear ready to heat up as we end June and head into early July. Our morning forecast shows broad coverage of hotter than normal weather developing in the medium range from the Midwest to East, with a lack of cool anomalies anywhere in the nation.

This pattern leads to GWDDs that average solidly above normal levels over the next 2 to 3 weeks, meaning higher demand for natural gas.

Such a pattern may tend to stick around more often than not, as we continue to see a push into "La Niña territory", evidenced by a continued cooling of equatorial waters in the Pacific Ocean. This image courtesy of Stormvistawxmodels.com.

Over the last few decades, in years where we have seen a transition into a La Niña base state, July has tended to run hotter, especially in the Midwest to Northeast, as shown here.

So it is no surprise to see this pattern showing up in the modeling. The question is, will this finally give the bulls in the natural gas market reason to cheer anytime soon? Prices once again tested the bottom side of the continuous prompt-month trading range this week, but have bounced a bit since doing so.

The low price environment stems from concerns over possible containment issues if storage completely fills before the end of injection season. Our modeling using recent supply / demand balances does project that storage will easily hit a record high level this fall, well over the 4.0 tcf mark.

The balance has tightened, however, in recent weeks, so it would not take much more to lower the risk for containment and allow prices to advance higher, assuming we do not see even more reductions in LNG volumes. Sustained heat for the balance of the summer season would play an important role in how things shape up over the next few months, so we will certainly be monitoring the trends as we move forward.