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September natural gas futures surge as key storage surplus shrinks

NYMEX September natural gas futures surged Thursday, Aug. 10, on the back of a storage injection for the week to Aug. 4 that was below expectations and the five-year average. Reaching $2.995/MMBtu following the midmorning release of the data, the contract settled the session 10.2 cents higher on the day at $2.985/MMBtu.

The U.S. Energy Information Administration reported a net 28-Bcf injection into natural gas inventories in the Lower 48 during the week ended Aug. 4 that was below market expectations that called for a 36-Bcf build to stocks.

While the build was above the year-ago injection of 24 Bcf, it was well below the five-year average injections of 54 Bcf and brought total U.S. working gas supply to 3,038 Bcf, or 275 Bcf below the year-ago level and 61 Bcf above the five-year average storage level of 2,977 Bcf.

The shrinking year-on-five-year-average surplus fed the upside as it implies a tightening of the supply/demand balance.

"Prices are finally gaining some traction off the well-established downtrend in the year-on-five-year average storage surplus," Energy Futures analyst Tim Evans said.

For the first week of the cooling season that covered the week to June 2, the EIA reported a net 106-Bcf injection that was 12 Bcf above the five-year average build, but inventory improvements in the subsequent nine weeks of the injection season saw only one additional week of injections above the five-year-average.

However, the overall health of the natural gas supply offers ongoing downside pressure, with the latest weather forecasts feeding the possibility of stronger injections going forward and adding to the downside support.

The six- to 10-day map from the National Weather Service shows below-average temperatures blanketing nearly the entire U.S. Florida, portions of Texas, California, Nevada and Oregon will each see some above-average temperatures.

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In the Northeast, north-central U.S. and across the west, above-average temperatures are seen in the eight- to 14-day period, while the majority of the country remains under average and below-average conditions.

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With weather as forecast, Natgasweather.com said, "Overall, demand will be near normal due to much of the northern half of the U.S. being comfortable and lacking summer heat. Overall, national natural gas demand will be moderate."

Moderating weather should allow larger storage injections going forward, and the EIA is still forecasting an end-of-season supply near record levels.

The natural gas storage is expected to exceed 3,900 Bcf by the end of October, according to the latest EIA forecast. This will slightly top the five-year average but fall short of the record 4,045 Bcf at the end of the 2016 injection season.

Day-ahead market pricing was higher amid support from warm weather and strong demand.

Transco Zone 6 NY traded nearly 20 cents higher to an index near $2.00 and Tetco-M3 marched about 10 cents higher to an index atop $1.70, still trailing the benchmark Henry Hub that with a gain of more than 1 cent found an index near $2.90.

Strong demand outlooks supported Waha hub trades about 5 cents higher to an index near $2.80, Chicago added nearly 5 cents to an average near $2.85, SoCal Border deals were about 5 cents higher to an index atop $2.80 and PG&E Gate added more than 1 cent to an index atop $2.75.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas index prices, as well as forwards and futures, visit our Commodities Pages.