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Bearish News For Natural Gas As Inventories Continue To Rise

Natural gas storage inventories increased by 106 Bcf for the week ended June 2, per EIA. The report is bearish with the build coming above market expectations, which were calling for a 98-Bcf increase in stocks. The full range of forecasts was between 80 Bcf and 111 Bcf.

The Henry Hub prompt contract (July 2017) traded as low as $2.93 on Monday, but it went back above $3.00 on Tuesday and Wednesday with warmer temperatures in the forecast. However, the larger-than-expected build pushed gas prices below the $3.00 mark again, but only temporarily. The July 2017 gas price is up 1-2 cents following the EIA report and currently trading at $3.04 per MMBtu.

Working gas storage inventories increased to 2.631 Tcf, level 332 Bcf below last year but 237 above the 5-year average. See Drillinginfo EIA’s chart below. This graphic shows projections for end-of-season inventories as of Nov 1. Two scenarios are included for summer injections (April-Oct) that result in inventories between 3.62 Tcf and 4.17 Tcf.

(Click to enlarge)

Gas Prices Finding Support on Forecasts of Summer-Like Temperatures

Warmer-than-normal temperatures are expected early next week that will drive power burn up and reach 30 Bcf/d. Demand from the power sector averaged 22-23 Bcf/d in April and May, which is in line with DI’s projections. For June, under normal weather and average gas prices ~$3.3-$3.5 per MMBtu, DI projected power burn to be 29.1 Bcf/d. Due to the recent losses in prices, DI’s power burn forecast has an upside risk of 1 Bcf/d as lower gas prices increase the competitiveness of gas over coal leading to higher gas utilization for power consumption.

On the supply side, dry gas production continues showing gains every week and in June so far is almost flat to June 2017. This could be the first month when production is comparable to last year’s output. However, year-to-date production levels remain about 2 Bcf/d below 2016 levels.

By Drilling Info

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