October Natural Gas
Early last week, October Natural Gas futures appeared to be showing signs of life as the technical picture started to take on a bullish look on the weekly chart. However, like many technical breakouts in the past, this one died once traders realized that any rally would not last without a bullish fundamental outlook.
Last week’s technical breakout was thwarted when the U.S. Energy Information Administration released a report that projected natural gas inventories to reach the second-highest level on record. Basically, it was a case of supply increasing faster than demand that convinced the EIA that inventories would continue to rise at a near record pace until at least the end of October.
According to the EIA, natural gas inventories at the end of July were 23% higher than a year ago and 2% above the previous five-year average for that week at 2.91 trillion cubic feet (Tcf).
The EIA report also said that inventories began the gas refill season in April about 173 billion cubic feet (Bcf) below the five-year average, but record domestic gas production has allowed for strong injections that have kept inventories above the five-year average since the end of May.
Based on its latest assessment of supply/demand conditions, the EIA projects that gas inventories will reach 3.867 Tcf by October 31, the end of the summer refill season. This estimate for end-of-season inventories will be about 69 Bcf above the five-year average.