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Shrinking storage overhangs prompt August gas futures higher ahead of weekend

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Six trends shaping the industries and sectors we cover in 2021

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Essential Energy Insights - January 2021


Shrinking storage overhangs prompt August gas futures higher ahead of weekend

Augustnatural gas futures were higher in the week's closing session Friday, July 8.The contract hit an intraday high at $2.825/MMBtu, but drifted back to closethe day with a 2.4-cent gain at $2.801/MMBtu.

Participantsare eyeing the shrinking of the natural gas storage overhangs as a catalyst forprice action. The total working gas supply continues building weekly, but at apace well below historical averages, resulting in a natural gas supply at 3,179Bcf, now 538 Bcf above the year-ago level and 599 Bcf above theyear-on-five-year average.

"Whilestorage levels remain significantly elevated, we anticipate natural gas marketswill continue to benefit from correcting of the overhang as weekly injectionsremain below the five-year average," Stifel analysts said in a July 8 note.

Theanalysts revised upward their natural gas price forecasts for the third quarterand the fourth quarter from $2.50/MMBtu and $2.75/MMBtu, respectively, to$2.80/MMBtu and $3.00/MMBtu. Based on the declining supply and steady demandgrowth, Stifel raised its second half of 2016 forecast 10% to $2.90, 18% aboveconsensus and left their 2017 and long-term forecasts unchanged.

Whilethe surpluses remain robust, they are significantly reduced from levels at thestart of injection season with working gas inventories at 2,480 Bcf on April 1,compared to 1,476 Bcf in inventories during the corresponding week in 2015.

Weatherforecasts calling for above-average temperatures to continue in the majorconsuming East and Midwest through the end of July and into August support theanticipation of strong demand that should trim the amount of availableproduction to move into storage in the weeks going forward. However,participants anticipate a step up in the level of storage injections for theweek to July 8, when the EIA releases its report on July 14.

Earlyprojections call for a build of about 60 Bcf that, while well above the39-Bcf build reportedfor the week to July 1, would still compare below the 77-Bcf five-year-averagebuild and the 95-Bcf injection reported in the same week in 2015.

Inday-ahead trading, a three-day product moved at mostly lower prices due in partto the inclusion of the lower demand typical of the weekend days included inthe package and as a result of milder weather through the two-day break.

Inthe Northeast Transco Zone 6 NY crumbled nearly $1.30 to an index at around$2.80, while TETCO-M3 trades were about 15 cents lower to an index near $1.40.At the benchmark Henry Hub, a near 10-cent retreat brought the index to around$2.75; Waha followed, trading more than 5 cents lower to an index around $2.60;and Chicago traded more than 10 cents down to an index around $2.65. Marketswere mixed in the West. SoCal Border deals were about 5 cents higher to anindex near $2.60, and PG&E Gate found a similar average in deals about 1cent lower.

Market prices and includedindustry data are current as of the time of publication and are subject to change.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.