NatGas Inventory-Builds Shrink As Power Demand Surges, But Cool-Down Coming

Natural gas inventories rose by 75 bcf last week, at the lower end of estimates.

Natural gas was last trading up by about 2 percent to $2.82/mmbtu after the Energy Information Administration reported that operators injected 75 billion cubic feet into storage last week, at the lower end of analyst estimates, which ranged from 75 to 80 bcf.

The latest injection was below last year’s build of 110 bcf and above the five-year average build of 88 bcf.

In turn, inventories now stand at 2,508 bcf, which is 679 bcf above the year-ago level and 27 bcf above the five-year average (calculated using a slightly different methodology than the EIA).

The weather last week was warmer than seasonal norms.

According to the Edison Electric Institute, utilities generated 84,970 GWh in the week ending June 20, up 1.4 percent from a year ago.

Looking forward, the NOAA’s 6- to 10-day outlook calls for cooler-than-normal temperatures across the key regions of the Northeast, Midwest and Texas.

NOAA 6- TO 10-DAY OUTLOOK

Meanwhile, Baker Hughes reported that the number of rigs drilling for natural gas in the U.S. rose by two to 223 last week.

Natural Gas Rig Count

Natural Gas

Bottom Line: The latest inventory data from the EIA were bullish, as the inventory surplus against the five-year average decreased from 41 to 27 bcf, and the inventory surplus against a year ago decreased from 714 to 679 bcf.

A second-straight week of hot temperatures lifted demand and pushed the weekly injection figure down. Even on a weather-adjusted basis, the latest build of 75 bcf was bullish, suggesting that power demand is robust during high-demand periods.

Thus, a sustained heat wave this summer would likely take a big chunk out of the year-over-year inventory surplus.

On the other hand, the opposite is true as well: When power demand wanes, natural gas is left with little support, and injections balloon, as we saw a few weeks ago.

That puts natural gas' fate in the hands of the weather gods. Right now, forecasts are calling for a cool-down across much of the country, which will surely lead to higher injections in the coming weeks.

However, because we're still early in the summer season, prices likely won't fall too far in the near term. The $2.50/mmbtu to $3.10 range will likely remain intact for the time being, until the summer weather outlook is better established.