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U.S. natural gas futures fell Friday but scored a second straight weekly gain, supported by a reduction in the inventory surplus to its lowest level since the end of January, and the impact of Hurricane Francine on offshore production.
The Bureau of Safety and Environmental Enforcement estimated the hurricane shut-in gas production of 973M cf/day, or 52% of current Gulf of Mexico output, but the impact on demand was seen as limited since the storm bypassed Texas LNG export facilities.
Producer curtailments in response to low prices have been keeping a floor under the market and contributing to a steady reduction in the inventory surplus, but "there is no reason to expect production can't and won't respond as near-term prices ramp up in coming months," Andy Huenefeld at Pinebrook Energy Advisors told Dow Jones.
Front-month Nymex natural gas (NG1:COM) for October delivery settled -2.2% on Friday at $2.305/MMBtu, up 1.3% for the week and 8.3% higher so far in September, but down 8.3% YTD.
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A hot summer has not been enough to offset the surplus of natural gas that has accumulated over the past two warm winters in the U.S., and absent a cold winter, signs point to another season of misery for natgas producers, according to Jinjoo Lee of The Wall Street Journal's Heard On The Street column.
Natural gas inventories are still ~9.6% higher than the five-year average, the U.S. Energy Information Administration said in a report this week.
Drillers have cut back on natural gas production but not enough to completely work through the surplus; S&P Global Insights estimates U.S. natgas output during April through October will average 101.7B cf/day this year, a mere 1B cf/day lower than a year earlier.
Prices might stay under pressure for a while longer, as Lee notes the Matterhorn pipeline that will carry gas away from the Permian Basin is expected to start up before year-end, helping relieve the regional glut but adding supply to other regions.
Also, the gap between natgas prices for delivery in October compared to December has been very high, which Eli Rubin at EBW Analytics says may encourage a surge of production toward the end of the year.
"All of that isn't great for natural gas producers, but it could be a nice reprieve for heating bills this winter," Lee writes.