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Larger-than-expected US gas storage build prompts Henry Hub price drop


Henry Hub summer, winter futures decline

Might be only triple-digit build of season

  • Author
  • Brandon Evans    Eric Brooks    Kent Berthoud
  • Editor
  • James Bambino
  • Commodity
  • Natural Gas

US natural gas storage fields injected 115 Bcf for the week ended May 21 -- much more than expected -- prompting Henry Hub futures to decline across the board May 27.

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Storage inventories increased to 2.215 Tcf over the latest reporting week, US Energy Information Administration data showed.

The build proved greater than the 107 Bcf addition expected by an S&P Global Platts' survey of analysts. It was outside the range of expectations as responses to the survey ranged from a 94 to 112 Bcf injection.

It was also above the five-year average of 91 Bcf, according to EIA data. It marked the first time in a month the injection was more than the average. Strong export demand and tepid production levels had resulted in an underwhelming injection season thus far.

US supply and demand fundamentals showed significant slackening during the reference week, as the last gasp of heating demand the week earlier finally dissipated, sending demand from the residential-commercial and industrial sectors nearly 6.5 Bcf/d lower, according to S&P Global Platts Analytics.

A bump in power burn demand, which rose by 1.7 Bcf/d on the week, was diminished by a 600 MMcf/d drop in LNG feedgas deliveries, leaving total demand 5.2 Bcf/d lower week on week for an average 81.8 Bcf/d. Upstream, supplies were essentially flat.

The injection might be the sole triple-digit increase for the entire 2021 injection season, as forecasts for the week in progress and the week ahead point to a tighter market as hotter weather is expected to boost power burn demand, leaving less gas available to inject into storage.

Storage volumes now stand 381 Bcf, or 15%, less than the year-ago level of 2.596 Tcf and 63 Bcf, or 3%, less than the five-year average of 2.278 Tcf.

On May 27, in its first day holding the prompt-month position, the July NYMEX Henry Hub contract dropped 7 cents/MMBtu, with the balance of summer through October following it lower. The winter contract strip from November-March was less prone, but not by much, as prices tumbled more than 6 cents/MMBtu.

This pushed the balance of summer below the $3/MMBtu support level, now trading closer to $2.95/MMBtu, while the winter strip remains firmly above at $3.13/MMBtu, though selling pressure appears to be rising.

Platts Analytics' supply and demand model currently forecasts an 80 Bcf injection for the week ending May 28. This would once again grow the deficit to the five-year average as power burn demand begins to heat up.

Total demand is up 1.7 Bcf/d week over week as a decline in residential-commercial and industrial demand pared down the effects of a roughly 3.4 Bcf/d increase in power burn demand.