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August natural gas in directionless trade as storage data awaited

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Essential Energy Insights - February 2021

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021


August natural gas in directionless trade as storage data awaited

Followinga finish a modest 0.3cent higher at $2.737/MMBtu, August natural gas futures continued to search fordirection in overnight trade ahead of the Thursday, July 14, open, and the nextslate of inventory data from the U.S. Energy Information Administration. Thecontract was last 1.0 cent higher at $2.747/MMBtu.

Gainsand losses have been modest as uncertainty pervades the market that is awash innatural gas inventories, currently at 3,179 Bcf after a 39-Bcf injection wasreported by the EIA for the week to July 1, but with a shrinking storagesurplus that is providing the market some support.

Participantsare looking toward the midmorning release of inventories for the week to July8, anticipating a ramp up in the rate of storage builds against the recentstring of modest injections, but a still smaller injection compared againsthistorical averages.

Asurvey of analystsand traders outlined a range of injections for this week's data spanning 46 Bcfto 67 Bcf, with consensus formed at a 58-Bcf build to stocks for the reviewweek. Although a step above the recent string of much smaller injections, thebuild would still compare bullish against a 77-Bcf five-year-average injectionand the 95-Bcf build reported for the corresponding week in 2015.

Whilethe total working gas supply would climb to 3,237 Bcf with a build atconsensus, storage overhangs currently of 538 Bcf above the year-ago level and599 Bcf above the five-year average would recede to 501 Bcf and 580 Bcfrespectively.

Thisreceding of the storage surplus is providing some footing for the marketagainst the backdrop of supportive fundamentals that include hot temperaturesand shrinking natural gas production.

Weatheroutlooks from the National Oceanic and Atmospheric Administration continue tosupport strong demand, with the six- to 10-day and eight- to 14-day projectionsoutlining the likelihood of above-average temperatures to continue across theeast and central U.S. through the end of the month.

Longer-rangeprojections call for an extension of the heat through August.

Atthe same time, natural gas production is slowing according to the latest data.Decline is in part due to supply disruptions resulting from a fire at aprocessing plant in Mississippi.

"Pricemomentum has taken a breather as supply disruptions from a processing plantfire in Mississippi are being restored, as apparent in Destin Pipeline flowdata," analysts with Guggenheim Securities LLC said. "However, webelieve momentum will resume as August injections are 6-7 Bcf/d lower thanyear-ago levels based on current weather forecasts."

Theanalyst team at Guggenheim expects the 538 Bcf year-on-year storage surplusshould be eliminated by November. Further the analysts said gas demand has yetto show price elasticity that has been a fear since the March lows.

Still,the EIA expects natural gas inventories to end the injection season in Octoberat a fresh seasonal record of 4,022 Bcf.

Day-aheadgas trade was to the upside in the midweek session for Thursday flow. Weatherwas driving strong demand for natural gas as a fuel for power generation andnatural gas market responded with across the board gains.

Atthe hubs, Transco Zone 6 NY trades were 47 cents higher to an index at$2.450/MMBtu, Henry Hub trades were 4 cents higher to $2.814/MMBtu, Chicagoadded 3.2 cents to an index at $2.748/MMBtu and PG&E Gate gained 6.8 centsto an average at $3.00/MMBtu.

On aregional basis, the Northeast gained 5.2 cents to an index at $2.357/MMBtu, theMidcontinent was higher by 6.6 cents to an index at $2.687/MMBtu, the GulfCoast added 4.7 cents to an index at $2.682/MMBtu, while the West gained 5cents to an index at $2.556/MMBtu.

Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including our power,naturalgas and coalindex prices, as well as forwardsand futures,visit our Commodities Pages. To view detailed EIA Weekly Natural Gas Storagedata, go to our Natural GasStorage Page.