US natural gas storage rises 77 Bcf to 1.567 Tcf spurring NYMEX futures rally

Chilly spring weather across much of the country curbed net injections to US natural gas storage in the final week of April, helping to widen the inventory deficit and propel a rally in NYMEX gas futures.

The US Energy Information Administration May 5 reported a larger-than-expected injection of 77 Bcf to gas storage for the week ended April 29 in a build that barely undershot the prior five-year average.

The injection was 16 Bcf more than anticipated from an S&P Global Commodity Insights' survey of analysts, which called for a 61 Bcf addition to stocks, and just 1 Bcf shy of the prior five-year average build.

As a result, US working gas inventories climbed to 1.567 Tcf. The storage deficit to 2021 narrowed again as stocks climbed to 382 Bcf, or about 20%, below the year-ago level of 1.949 Tcf. The inventory deficit to the prior five-year average expanded to its widest yet this season, leaving stocks 306 Bcf, or about 16%, below the historical average of 1.873 Tcf, EIA data showed.

The NYMEX Henry Hub June contract rebounded about 15 cents, or nearly 2%, after the storage report's release, rising to $8.30/MMBtu after falling steadily in overnight trading from fresh 14-year highs in the mid-$8/MMBtu range, CME Group data showed.

Weather

Unseasonably low temperatures across the Midwest and the Northeast through April and even into early May have been a key driver of the NYMEX futures rally and the widening storage deficit.

In the week ended April 29, population-weighted temperatures across the Upper Midwest averaged a chilly 54 degrees Fahrenheit, while the Northeast rose to just 55 F. During the week, US residential-commercial gas demand, led by the two key heating regions, briefly spiked to more than 25 Bcf/d, S&P Global Commodity Insights data showed.

Storage builds of 15 Bcf in both the Midwest and the Northeast, totaled about 4 Bcf below average for the corresponding week. In the Mountain and Pacific regions, the weekly storage injections were also undersized, but more than offset by a larger-than-average build in the South-Central region.

During the week in progress, a smaller but not insignificant jump in US heating demand to around 20 Bcf/d could limit storage injections again. According to preliminary forecasts S&P Global published, the EIA is likely to report a storage injection in a 65-75 Bcf range for the week ending May 6, compared with a five-year average injection of 82 Bcf in the corresponding week.

Supply

The chilly start to spring this year has increased the call on already-strained US gas supply.

After trending at more than 93 Bcf/d in April, domestic production has slumped since the start of May to average just 92.6 Bcf/d this month, according to S&P Global data. While the US rig count, at 803, is now estimated at its highest in over two years, US gas production has continued to flounder, trending about 2-3 Bcf/d below record highs recorded in December 2021.

According to S&P Global analysts, a rebound in production to over 95 Bcf/d would likely ease acute supply concerns in the market, allowing gas futures prices to retreat below $6/MMBtu. An increase to over 97 Bcf/d is forecast to have an even larger impact, likely easing prices to around $4 to $5/MMBtu. Current supply projections show output topping 95 Bcf/d by midsummer and surpassing 97 Bcf/d by sometime in the fourth quarter, potentially giving pause to the NYMEX rally by later this year.