October natural gas futures slid 0.89% to $2.862 after the 50-day moving average rejected a spike. A new Permian pipeline starts September 1, adding to supply pressure.
October Nymex natural gas futures settled at $2.862, down 0.89%, after the 50-day moving average rejected a Thursday spike that briefly pushed prices above $2.99. The rejection came as Energy Transfer's Hugh Brinson pipeline prepares to start moving Permian gas on September 1, adding about 2.2 billion cubic feet per day of capacity from the Permian Basin to East Texas, toward the Henry Hub delivery point.
Traders began pricing the additional supply before the first molecule moved. Lower 48 dry gas production is running at 113.0 bcf per day, up 4.5% from a year ago, according to BNEF. Baker Hughes reported the U.S. gas rig count rose by five last week to 132, a five-month high just below February's three-year high of 134. Producers are not backing off even with Henry Hub below $3.00.
Storage adds to the supply-side pressure. The EIA expects U.S. inventories to hit 3,985 bcf at the end of October, which would be the highest October level in 10 years and about 5% above the five-year average. As of August 21, storage was 5.5% above the five-year seasonal average.
September heat is the main counterweight. NatGasWeather has the southern two-thirds of the country staying hot through September 2, with highs between the 90s and 110s. The Commodity Weather Group calls for above-average temperatures across the eastern two-thirds from September 2 through September 11. Lower 48 gas demand hit 78.9 bcf per day Friday, up 8.2% from a year ago, and the Edison Electric Institute said power generation rose 6.1% year over year in the week ended August 22.
LNG export flows reached 19.5 bcf per day Friday, up 10% from the prior week. But the EIA lowered its third-quarter LNG export forecast to 16.5 bcf per day on maintenance at Freeport LNG. Reduced feedgas leaves more gas in domestic storage, particularly in the South Central region.
Technical analyst James Hyerczyk said the 50-day moving average at $2.930 is the key near-term level. A sustained move above it could drive prices toward the retracement zone at $3.044 to $3.133, he wrote. A sustained move below it opens the downside target at $2.829 to $2.791. If that fails, the contract lows near $2.668 come into play.
The Hugh Brinson pipeline starts September 1. Production is at multi-year highs, the rig count is climbing, and storage builds are on pace for a decade-high October level. Freeport maintenance is keeping LNG feedgas below full strength. The EIA has Henry Hub averaging $2.87 per MMBtu in the third quarter.
September heat is the only factor preventing a faster slide into the shoulder season. If the forecasts hold through the first week, power burns can keep gas near these levels. When the heat breaks, the floor gets harder to defend.
For more on natural gas positioning and the heat test, see Natural Gas: 207K Shorts Face Heat Test as Front-Month Holds Support.
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