04/27/2018: June Natural Gas Slips

April 27th, 2018

Taking the lead from the May gas contract that rolled off the board in the prior session with a 3.5-cent gain at a finish at $2.821/MMBtu, NYMEX June natural gas futures had a weak showing overnight ahead of the Friday, April 27, open, as the market looked beyond significantly depleted inventories toward what is expected to be a healthy pace of storage rebuilding going forward. At 10:05 a.m. ET the contract was 5.1 cents lower at $2.788/MMBtu.
Natural gas inventories continued to draw lower three weeks beyond the typical start of injection season, with the latest storage data from the U.S. Energy Information Administration outlining an 18-Bcf withdrawal for the week ended April 20. That bested the full range of estimates coming into the day, and defied both the 71-Bcf prior-year injection and the 60-Bcf five-year average build. Total working gas stocks were left at 1,281 Bcf, or 897 Bcf below the year-ago level and 527 Bcf below the five-year average of 1,808 Bcf.
Increased heating demand relative to historical averages is seen to have allowed for the continued storage erosion in the recent inventory report week, but milder to warmer weather of late and in store associated with subdued demand suggests the possibility of the changeover from weekly stock draws to injections.
Warmer weather west of the Rocky Mountains and near-normal conditions on the eastern seaboard contributed to a 14% week-on-week decline in residential/commercial-sector demand during the week ended April 25 that combined with a 2% decline in both power burn and industrial-sector demand to drive a 6% reduction in total U.S. gas consumption, according to the EIA’s latest “Natural Gas Weekly Update.” Dry production was up 1% week over week.
Deflated demand combined with elevated production should allow for natural gas to flow more freely into underground storage facilities.
Weather forecasts are mixed, but the prevalence of milder to warmer weather alongside the higher low temperatures associated with below-average temperatures this time of year suggest diminished weather-related demand support as heating demand drops and significant cooling load is kept at bay.
The National Weather Service sees average to above-average temperatures encompassing a majority of the country through both the upcoming six- to 10-day and eight- to 14-day periods, as below-average temperatures settle over a narrow band of the west-central U.S. in the shorter-range view and over a large area of the central into eastern U.S. in the extended view.
Growing production implied by a rising rig count is expected to help natural gas inventories build by what is expected by the EIA to be the second largest volume of refill season net stock additions on record totaling about 2,416 Bcf, or 11.3 Bcf/d, by the traditional end of the injection season Oct. 31. The agency anticipates an end-of-October storage of 3,767 Bcf.

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