Analysts see hotter weather keeping US gas storage surplus in retreat

Market analysts expect that hot weather and strong natural gas-fired cooling demand across much of the Central and Eastern US in late July likely kept injections to domestic inventory below average again.

According to the latest gas storage survey from S&P Global Commodity Insights, the US Energy Information Administration should report another undersized injection to US inventory in its upcoming report totaling just 27 Bcf for the week ended Aug. 2.

Responses to the weekly survey were reported in a slightly narrower range this week spanning from about 10-35 Bcf. Two-thirds of those surveyed reported an expected an injection ranging between 25-35 Bcf.

If accurate, the consensus 27 Bcf injection expected by analysts would narrowly overshoot the year-ago build of 25 Bcf reported in the same week of 2023. The expected weekly injection would still look relatively bullish compared with the five-year average build of 38 Bcf, reported in the corresponding week, data from EIA showed.

NYMEX

On Aug. 6, the NYMEX September gas futures contract was up about 6-8 cents on the day trading just above the psychological $2 level, data from CME Group showed.

After retreating to just $1.86/MMBtu in late July, the prompt-month contract has recently found some downside resistance around the $2 level. Over the past eight weeks, market sentiment on the NYMEX has been largely bearish, knocking prompt-month prices from an annual high at over $3 amid concern over this summer's stout gas production rebound and the US' still massive gas storage surplus.

"The bearish argument is that $2 is hard to hold because we're getting close to the end of summer," said Phil Flynn, senior market analyst at The Price Futures Group by telephone Aug. 6. "The bullish side is that more producers are talking about cutting back production because the money isn't there."

Although US natural gas production has been trending upward since early June, more recent estimates show output pulling back from a late July high at just over 104 Bcf/d. On Aug. 6, US production was modeled at just over 102.3 Bcf/d, data from Commodity Insights showed.

"Lower natural gas production [is] a supportive near-term development," Eli Rubin, senior energy analyst at EBW Analytics, wrote in an Aug. 6 market note to subscribers. "Appalachian supply [is] down more than 1 Bcf/d in early-cycle nominations [after] local in-basin spot prices sank to $1.33/MMBtu. Permian and Rockies production is also notably lower..."

Fundamentals

In the week to Aug. 2, hot weather across the Midcontinent, Texas, the Southeast and the Northeast helped fuel a nearly 4 Bcf/d gain in US gas demand. The weekly gain was led principally by stronger US gas-fired power burn which was up about 2.5 Bcf/d compared with the week prior. Feedgas deliveries to the US LNG terminals were also up by nearly 1 Bcf/d. On the supply side, the US gas market lengthened by nearly 800 MMcf/d thanks mostly to higher pipeline imports from Canada but also owing to a modest uptick in domestic gas production. On balance, the US gas market still tightened by roughly 3 Bcf/d, data from Commodity Insights showed.

Assuming EIA reports a 27 Bcf injection, US gas in storage would rise to 3.276 Tcf. The domestic inventory surplus would retreat for a fourth consecutive week falling to 430 Bcf, or about 15%, above the five-year average. The surplus to 2023 would expand, but just narrowly, rising to 254 Bcf, which would still be about 8.5% above the year-ago inventory level, data from EIA showed.

Looking ahead to the week ending Aug. 9, many analysts are already expecting a sequentially smaller weekly build to US inventory. According to Commodity Insights' natural gas supply-demand model, EIA will likely estimate an injection of just 18 Bcf to US gas storage for the first full-week of August. The predicted injection would compare with a five-year average build of 43 Bcf and a year-ago stock addition of 33 Bcf, both reported in the corresponding week, EIA data showed.