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May natural gas reverses early gains with total storage as anchor

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May natural gas reverses early gains with total storage as anchor

Maynatural gas futures' early gains to a $2.028/MMBtu high were reversed as themarket digested the latest inventory data from the U.S. Energy InformationAdministration that outlined a neutral to slightly bullish withdrawal, andinstead focused on the total working gas supply and expectations that thisweek's pull will be the last of the season. The contract moved as low as$1.930/MMBtu and settled 3.7 cents lower at $1.959/MMBtu.

TheU.S. Energy Information Administration reported a net 25-Bcf withdrawal from natural gas inventories in theLower 48 during the week ended March 25 that was slightly above consensusexpectations and above historical averages.

Thisweek's storage withdrawal compared against the five-year average withdrawal of22 Bcf and the year-ago pull of 10 Bcf, and brought total U.S. working gassupply to 2,468 Bcf, or 1,002 Bcf above the year-ago level and 843 Bcf abovethe five-year average storage level of 1,625 Bcf.

Asurvey of analystsand traders ahead of the report's release showed outlooks ranged from a 16-Bcfwithdrawal to a pull of 33 Bcf for the review week, with a consensus formed ata 24-Bcf drawdown from stocks.

Despitethe week-on-week tightening of the supply, the total working gas inventoryremains exceedingly healthy and on track to end the withdrawal season near theMarch 31, 2012, end-of-season record high of 2,473 Bcf, with one more reportfor the current withdrawal season expected to show an injection for the week toApril 1.

Thenatural gas inventory continues to anchor the market to the downside, whileweather remains a ballast limiting losses due to cold weather remaining in theforecasts for the upcoming six- to 10-day and eight- to 14-day periods, whilethe calendar marks the continued rolling into spring, with milder weatherexpected to cut the lingering heating demand ahead of a significant uptick incooling load.

Thesix- to 10-day weather map from the National Oceanic and AtmosphericAdministration shows below-average temperatures across the eastern third of thecountry, average temperatures across a swath of the central U.S. andabove-average temperatures extending from the west to encompass the majority ofthe central U.S.

Inthe eight- to 14-day outlook, the NOAA sees below-average temperatures holdingin the East, with the intensity of the cold diminishing and opening the way foraverage temperatures in portions of the Northeast and Southeast. Averagetemperatures continue across a portion of the central U.S., while above-averagetemperatures remain in the West and majority of the central U.S.

Whilethe current weather outlooks prevent a steeper decline in values, the erosionof demand will lead to a long period of injections through the spring shoulderseason that will keep the bulls from gaining any traction. The market iscounting on strong demand from the power-generating sector through the summercooling season, to wear down the supply before the fall shoulder period renewsinjections.

TheAmerican Gas Association in its latest Natural Gas Market Indicators posed thequestion of whether the bulls will return. "They might, but the supplyoverhang must be overcome first," the AGA said.

Day-ahead gas markets tickhigher with cold returning

Aftera brief warm up in the Northeast, cooler weather once again supported an uptickin the price of natural gas moved for Friday delivery at key hubs across theregion. Having gained impressively in the previous session Algonquin Citygatesdeals were unchanged at an index near $1.30, while at the Canadian border,Iroquois-Waddington traded up about 5 cents to an index near $2.00. In similarfashion, while trading at Transco Zone 6 NY was relatively steady with the biasto the upside and an index at around $1.30, trading at the nearby Tetco-M3 hubwas higher by about 4 cents to an index atop $1.25.

Cooland stormy weather in the Gulf region promoted gains amid the anticipation of ademand boost ahead of the weekend break. Friday deals at the benchmark HenryHub were up about 10 cents to an index near $1.95. A near 10-cent gain at ColGulf Mainline bolstered the index there to around $1.85, while FGT Zone 3bucked the uptrend with trades done on a downward bias held near unchanged ataround $1.90. With less weather support, Chicago gas deals were higher by about1 cent with the index marked near $1.95, Waha advanced nearly 5 cents to anindex near $1.80, and CIG Mainline ticked down about 1 cent to an averagebeneath $1.70.

Actionwas mixed and changes modest at the major hubs in the West. SoCal Bordertrades, slightly lower on the session, found an average beneath $1.80. AtPG&E Gate, deals were less than 1 cent higher and averaged around $1.95,while Malin traded more than 1 cent higher to an index atop $1.75.

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.