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Henry Hub futures spike following US gas storage build below market expectations

Highlights

Inventories expand by 29 Bcf: EIA

Henry Hub winter strips climbs to $4.25/MMBtu

Henry Hub futures spiked Aug. 26 as US storage volumes increased much less than the market anticipated, precipitated by a massive drawdown in the South.

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The NYMEX Henry Hub September contract surged 27 cents to $4.17/MMBtu in trading following the release of the US Energy Information Administration's weekly storage report. The winter strip, November through March, rose 21 cents to $4.25/MMBtu.

Working gas inventories added 29 Bcf to 2.851 Tcf for the week ended Aug. 20, the EIA reported Aug. 26. The injection was less than the 37 Bcf addition expected by an S&P Global Platts' survey of analysts. It also trailed the five-year average of 44 Bcf and last year's 45 Bcf injection in the corresponding week.

US storage volumes now stand 563 Bcf, or 16.5%, less than the year-ago level of 3.414 Tcf and 189 Bcf, or 6.2%, less than the five-year average of 3.040 Tcf.

The injection was also well below the 42 Bcf implied flow reported by the EIA for the week ended Aug. 13. Most of the change stemmed from the EIA's South Central region, where inventory fell by 14 Bcf, compared with the previous week's 1 Bcf increase.

The South Central region's total demand was up fairly sharply, including a 1.1 Bcf/d increase in LNG export demand and along with a 400 MMcf/d increase in Texas power demand due to higher population-weighted temperatures, according to Platts Analytics.

South Central spot prices have strengthened this week compared with last, as warmer-than-normal temperatures sweep across the region. After averaging under $3.90/MMBtu for the week ended Aug. 20, Henry Hub spot prices for the week starting Aug. 22 are on pace to average $3.95/MMBtu, pushing over $4/MMBtu for the first time in two weeks on Aug. 26.

The warmer-than-normal temperatures have driven a spike in power demand, elevating combined Southeast and Texas power demand to 19.5 Bcf/d on Aug. 25, 1.2 Bcf/d stronger than the prior week's average, according to Platts Analytics.

The elevated power burns have strengthened basis pricing at demand hubs, like Houston Ship Channel, to just 1 cent behind Henry Hub.

Platts Analytics' supply and demand model currently forecasts a 20 Bcf injection for the week ending Aug. 27, which would measure 33 Bcf less than the five-year average. Fundamentals this week have moved tighter still, as total supplies have remained mostly flat week over week, while downstream demand has increased by nearly 2 Bcf/d.

US power burn demand is up 2.2 Bcf/d week over week. These gains were only slightly diminished by a 300 MMcf/d dip in LNG feedgas volumes and a 300 MMcf/d fall in industrial loads.