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May natural gas slips on near-term fundamental pressure

May natural gas futures were lower in the week's opening session Monday, April 3. Early buying to a $3.239/MMBtu high was reversed and the contract fell to a $3.125/MMBtu low before closing 6.2 cents lower at $3.128/MMBtu, as participants consider the natural gas supply at the end of the titular withdrawal season, and look to mild weather ahead.

The titular withdrawal season ended March 31 with what is expected to be more than 2.0 Tcf of natural gas left in the total working gas supply.

Inventories sat at 2,049 Bcf after a 43-Bcf withdrawal from stocks for the week to March 24. Storage is 423 Bcf below the year-ago level and 250 Bcf above the five-year average storage level of 1,799 Bcf.

Traders and analysts taking an early look at inventories for the week to March 31 expect an injection as mostly mild weather during the review week is likely to have trimmed demand for heating and thus natural gas demand.

Early projections call for a build to stocks in the low teens, which would result in an end-of-withdrawal-season inventory atop 2.05 Tcf, above the five-year average but well below the level at the close of the 2015-16 withdrawal season.

Working gas levels topped this threshold at the end of the heating season only two other times, in 2012 and 2016, when working gas totaled 2,473 Bcf and 2,470 Bcf, respectively, the U.S. Energy Information Administration said in its latest "Natural Gas Weekly Update."

"Both of those heating seasons were also characterized by warmer-than-normal temperatures and relatively light heating demand for natural gas," the EIA said.

However, for the winter 2017 to date, while net withdrawals are 19% lower than the five-year average, total inventories declined significantly more than during last year, Energy Management Institute principal Dominick Chirichella said.

"The change is attributed to structural increases in demand both internally in the US as well as due to increases in exports to Mexico and into the international LNG market," he said.

Changes in the supply/demand balance support bullish market sentiment in the medium term, but with inventories considered at a healthy level to start the shoulder season, more losses are likely as weather points to additional demand erosion.

The six- to 10-day weather map from the U.S. Energy Information Administration shows above-average temperatures across the majority of the eastern two-thirds of the country that should stifle demand for heating while limiting demand for cooling. In the western third of the country, mostly below-average temperatures are forecast.

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The eight- to 14-day outlook points to a possible increase in demand in portions of the central U.S. and the West, which will see average and below-average temperatures, while above-average temperatures in the eastern third of the country suggests limited demand.

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Day-ahead trade was done in mixed directions for product to be delivered Tuesday, April 4, on varied weather and demand outlooks.

Transco Zone 6 NY and Tetco-M3 trades were about 5 cents lower to indexes near $3.00 and $2.85, respectively. Deals at the benchmark Henry Hub tripped similarly to an index near $3.05, while Waha added more than 1 cent and Chicago gained nearly 5 cents to indexes near $2.80 and $3.00. In the West, SoCal Border deals were nearly 10 cents higher to an index atop $2.80, while PG&E Gate trades were about 5 cents higher to around $3.25.

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.