A Shrinking Spread Shows Gas Market Is Far From Over the Glut

EghtesadOnline: Traders aren’t convinced this summer’s heat will be enough to burn away the nation’s shale gas glut.

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02 July 2017

The spread between natural gas for August and September delivery is close to zero, odd considering gas demand typically rises in August as people are blasting air conditioners, Bob Yawger, director of the futures division at Mizuho Securities USA in New York, said by phone. The last time these two contracts traded at parity was more than a year ago, according to Bloomberg.

The narrowing spread underscores how stubborn the glut of U.S. natural gas has become -- that not even summer’s burn is enough to wipe it out. While prices are lower, America’s shale is still booming, with production forecast by the U.S. government to extend a record in the Marcellus, the country’s biggest gas play.

“There is so much gas out there that, despite the fact that you have utility demand through the roof, you still can’t draw down on natural gas storage,” Yawger said. “It’s up to you whether you want to run with it or avoid it or not -- or just deny that thing ever existed. But the market is telling you there is weakness where it may not otherwise be so obvious.”

The latest weather forecasts aren’t doing the market any favors either. Temperatures are expected to be normal from east Texas to the Northeast through July 14, according to Commodity Weather Group LLC. That means people won’t be using as much power to cool off, said John Kilduff, partner at Again Capital LLC in New York.

Natural gas for August delivery fell 0.7 cent on the cooler weather outlook to settle at $3.035 per million British thermal units on the New York Mercantile Exchange on Friday. Futures were up 3.6 percent in the seven days ended June 30, the most in seven weeks.