Natural-gas prices declined for the second straight day Tuesday on signs that producers will continue to push output to new highs, while forecasts that the current heat wave in parts of the U.S. will dissipate threatened demand.
Prices got a lift last week ahead of Hurricane Barry’s landfall in Louisiana, but fears that the first hurricane of the 2019 season would significantly disrupt production from the Gulf of Mexico are proving largely unfounded. In fact, the storm, as well as a major power outage in Manhattan over the weekend, may have done more to disrupt demand for the electricity-generating fuel.
Natural-gas futures for August delivery traded down 4.5% to $2.30 per million British thermal units on Tuesday. Futures lost 1.8% on Monday and are down about 17% since this time last year. Prices haven’t been so low in July since 1999.
Typically, demand for electricity to run air conditioners and supply disruptions from tropical storms drive natural-gas prices higher in summer. Though sweltering temperatures are being felt in the Midwest and Northeast this week, forecasts call for cooler weather to close out July.
In the Gulf of Mexico, energy companies are bringing production back online this week after shutting down offshore platforms and evacuating personnel in the path of Hurricane Barry. The Bureau of Safety and Environmental Enforcement estimated that about 1.7 billion cubic feet of daily gas production was shut-in because of the storm.
The short-lived disruption was at least partly offset by power outages along the coast as well as in New York City over the weekend, said Phil Flynn, senior market analyst at Price Futures Group.
Importantly for gas producers, Barry didn’t disrupt operations at liquefied natural gas export terminals along the coast, which have been relied upon to absorb much of the added production in recent years. As the storm bore down on the coast, analysts and investors weighed whether it might disrupt supply or demand more.
Overall gas demand is up this summer from a year ago, yet added domestic consumption and increased exports have been outpaced by supply growth.
In a report Monday, the U.S. Energy Information Administration estimated that August natural-gas output would increase year over year in each of seven major regions, keeping the country on pace to top 2018’s production record.
Much of the increase is coming from Appalachia, which drillers have turned into the country’s top gas-producing region by tapping the Marcellus and Utica shale formations. But regions such as West Texas, where drillers aim for crude, are also flooding the market with gas that is produced as a byproduct of oil extraction. In the Permian Basin, for example, the EIA estimates that gas output will be 21% higher than it was last August as producers drill more because of higher oil prices.
Tudor, Pickering, Holt & Co. analysts wrote in a note to clients this week that as long as U.S. oil prices remain above $50 a barrel, natural-gas prices should linger below $2.50 per MMBtu. On Tuesday, West Texas Intermediate futures, the U.S. oil benchmark, for August delivery fell 3% to $57.74 a barrel on the New York Mercantile Exchange.
A dim view of natural-gas prices has become widely held. Oil and gas executives who responded to the Dallas Federal Reserve Bank’s quarterly energy survey said they expect natural-gas prices to end the year at $2.67 per MMBtu, about 10% less than what executives forecast earlier this year.
Meanwhile, Jefferies this week lowered its price forecast for this year to $2.70, from $2.88, and longer-term to $2.75 beyond, from $3. The reason, the investment bank’s analysts said, is that at $3 or more, producers, particularly those in Appalachia whose main business if producing gas, would be encouraged to drill and thus swamp the market anew.
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