US gas storage posts first injection of season as NYMEX drifts around $2/MMBtu

The start of the spring injection season for US natural gas storage in the week ended April 7 undershot market expectations, while narrowing an acute inventory surplus that continues to weigh on the NYMEX gas futures market.

The US Energy Information Administration reported April 13 a 25-Bcf net injection to US natural gas storage stocks in the week prior, increasing US stocks to 1.855 Tcf as the expected pivot to spring storage builds begins with a massive surplus that accumulated during an exceptionally mild winter.

Following the EIA's latest estimate, stocks are now 295 Bcf, or nearly 19%, above the five-year average of 1.560 Tcf and 460 Bcf, or about 33%, above the year-ago level of 1.395 Tcf.

NYMEX Henry Hub prompt-month futures drifted 9-10 cents lower in the hours following the EIA's storage report to trade near $2/MMBtu, with the bullish sentiment headed into the week on the back of a cooler weather outlook giving way to renewed bearish pressure leaving prices just above the multi-year low $1.99/MMBtu closing price set March 29, intraday CME Group data showed.

The injection for the week ended April 7 fell 3 Bcf short of an average build of US inventories over the past five years and exceeded the 8-Bcf injection observed in the corresponding week last year. The weekly US inventory injection also measured 3 Bcf below the consensus estimate from S&P Global Commodity Insights' weekly gas storage survey, which predicted a 28 Bcf injection to domestic inventories for the week, in line with the five-year average.

Fundamentals

But market participants found some favorable results in the EIA report, including an 8-Bcf injection in the South-Central region for the week ended April 7 that was considerably less than the 28-Bcf injection in the South-Central region observed when the market flipped back to net injections in the corresponding year-ago week.

Particularly high inventories in the South-Central region, which had a surplus at 239 Bcf above the five-year average for the week ended April 7, have been a significant driver of bearish price sentiment, with market participants in recent weeks expecting weaker injection demand this spring could weigh on prices through May and into June.

As total US gas demand fell by more than 6 Bcf/d week on week for the week ended April 7, mainly because of a nearly 5.4 Bcf/d drop in residential-commercial demand, robust feedgas deliveries to US LNG export terminals have offered a rare bright spot for domestic gas demand.

Outlook

April feedgas demand has averaged about 13.8 Bcf/d through April 13, S&P Global data showed. Daily flows were scheduled to reach a record high of more than 14.4 Bcf/d April 13, based on nominations for the morning cycle that could later be revised. The deliveries have been on pace to set a new month-high average if they continue, exceeding the previous record of more than 13.1 Bcf/d set in March.

At the same time, April could be the last big month for US LNG feedgas demand before spring maintenance at LNG terminals begins to weigh on those volumes.

According to a recent forecast from the National Weather Service, above-average temperatures are likely across Texas, the Southeast, and the upper Northeast in April. The Gulf Coast is at the highest risk, with a 50%-60% chance for above-normal temperatures this month. With the South-Central region already facing high gas storage levels, the agency's forecast puts the market on an even more bearish footing.

S&P Global's supply-demand and storage models are calling for increased net storage injections for US gas inventories in the week ending April 14, with the latest projections both calling for a 62-Bcf injection. If accurate, the predicted build would increase US inventories to above 1.9 Tcf. The expected injection compares with an average 41 Bcf injection to inventories reported in the corresponding week over the past five years. It would also exceed the 47-Bcf injection reported in the corresponding year-ago week, EIA data showed.