Despite all the variables moving in favor of bulls, natural gas prices gave up half their rally. We explain why.
Natural gas prices fell today after the Energy Information Administration reported that inventories grew by 62 billion cubic feet last week, more than the 55 to 57 bcf that analysts had been expecting.
Over the past few weeks, gas has given up approximately half of its recovery rally, from $1.90/mmbtu up to $2.75. Are prices poised to continue lower or is a rebound in the works?
In our view, natural gas will remain trendless, though the $1.90 low in April will likely remain the bottom for this cycle.
Production is declining, the inventory surplus is dwindling and the rig count continues lower; these are all supportive factors. On the other hand, the storage surplus remains substantial and output has only fallen modestly thus far.
Last week’s injection of 62 bcf was below both the year-ago build of 80 bcf and the five-year average build of 101 bcf. This pattern of lower-than-normal injections has been evident since late April and has helped reduce the inventory surplus.