Record-Breaking NatGas Inventory-Build Paints Bearish Picture For Prices

June 04, 2015

 

Meanwhile, Baker Hughes reported that the number of rigs drilling for natural gas in the U.S. rose by three to 225 last week.

 

Natural Gas Rig Count

 

Natural Gas

 

Bottom Line: The latest inventory data from the EIA were bearish, as the inventory deficit against the five-year average turned into an inventory surplus of 15 bcf, and the inventory surplus against a year-ago increased from 721 to 734 bcf.

The Memorial Day week typically features the largest inventory-build of the year, and last week was no exception. The 132 bcf injection was a whopper, surpassing even last year's massive 119 bcf injection. In fact, it was the largest inventory increase of the past decade.

With weather a nonfactor, the spring shoulder season is a good time to get a handle on the underlying supply and demand fundamentals of the market. In that context, the fact that last week's injection was a stunning 39 bcf (5.6 bcf/d) above the five-year average paints a very bearish picture.

It's becoming increasingly clear that this injection season will be a record breaker and that inventories will peak in November at exceptionally high levels, well above 4,000 bcf. Prices must correct to balance the market and dampen the rapid production growth that is flooding the market. Barring a sustained and severe heat wave this summer, prices are likely to make new lows in the coming weeks below $2.50/mmbtu.

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