Natural gas prices remain firm after US storage fields add 76 Bcf to inventories

US natural gas storage fields posted an above-average storage build for the week ended June 25, but high demand stemming from a heat wave might prompt a net withdrawal from some regions for the week in progress keeping prices elevated.

Working gas storage inventories increased 76 Bcf to 2.558 Tcf, the US Energy Information Administration reported June 24. The build was stronger than the 63 Bcf addition expected by an S&P Global Platts survey of analysts, as well as the five-year average build of 65 Bcf, according to EIA data.

Both the Henry Hub balance-of-summer and next-winter contract strips are trading lower on the day following a storage inventory report that showed inventories rising much more than expected. Immediately following the EIA storage report, Henry Hub futures prices traded as much as 7 cents/MMBtu lower on the day. The selloff largely subsided by afternoon, with prices through October trading around 2 cents/MMBtu lower on the day to average $3.61/MMBtu.

Slightly heavier selling pressure was seen on the November-March strip, which traded down roughly 6 cents/MMBtu on the day. Still, prices are up nearly 20 cents from a week ago. Already meager summer-to-winter spreads have narrowed to 5 cents as of July 1, down from an average spread of 13 cents/MMBtu in June.

Total US supply for the week ended June 25 added 600 MMcf/d week on week after a 1 Bcf/d surge in onshore production was diminished partly by a roughly 500 MMcf/d drop in net Canadian imports, according to S&P Global Platts Analytics.

Downstream, a healthy uptick in LNG feedgas demand along the US Gulf Coast was overshadowed by a roughly 2 Bcf/d drop in gas-fired generation demand, resulting in average daily demand falling by 800 MMcf/d on the week. These divergent trends left US balances looser by 1.4 Bcf/d, resulting in a much larger storage build week on week.

Platts Analytics supply and demand model currently forecasts a 22 Bcf injection for the week ending July 2, which would measure 41 Bcf below the five-year average.

Power generation demand gains overshadowed most movements among fundamentals for the week in progress. Total supply retracted by roughly 200 MMcf/d on the week, after a sharp drop in production was partially offset by a recovery in net Canadian imports.

Total demand has surged due to a massive increase in cooling loads, which propelled power demand 5.5 Bcf/d higher on the week. It was accompanied by a nearly 1 Bcf/d increase in LNG feedgas demand. Overall, the gains in demand were slightly pared by a sizable drop in exports to Mexico, alongside smaller declines in both residential and commercial and industrial demand.

All three major demand regions, Midwest, East and South Central, reported a significant retraction in storage injections for the week ending July 2 in order to meet the record-breaking demand seen during the ongoing heat wave. The South Central region led the way with a 14 Bcf reduction, actually flipping to a net withdrawal for the week.