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May natural gas boosted as supply sinks faster than 5-year average

May natural gas futures were higher Thursday, March 29, finishing below the session's $2.764/MMBtu high but still elevated as the market responded to an inventory withdrawal that trailed estimates but beat averages. The contract settled 3.5 cents higher at $2.733/MMBtu.

The U.S. Energy Information Administration reported a net 63-Bcf withdrawal from natural gas inventories in the Lower 48 during the week ended March 23 that was below the 72-Bcf consensus expectation ahead of the report's release, but above both the respective year-ago and five-year average withdrawals of 58 Bcf and 46 Bcf.

The pull brought total U.S. working gas supply to 1,383 Bcf, or 672 Bcf below the year-ago level and 346 Bcf below the five-year average storage level of 1,729 Bcf.

With one additional storage drawdown in the upper 20s Bcf anticipated in the week to March 30, before milder weather steps in to further erode demand and reverse weekly storage drawdowns to weekly injections, natural gas inventories are likely to end the withdrawal season about 19% below the five-year average on March 31.

Concerns surrounding the significantly depleted natural gas supply and the market's ability to rebuild stores ahead of the next winter season stoked gains as participants look to weather for additional support.

Midrange forecasts from the National Weather Service call for below-average temperatures to engulf the Northeast, mid-Atlantic, Midwest, central, parts of the Northwest and the upper tier of the South, as average to above-average temperatures will settle over much of the West and the balance of the South for the six- to 10-day and eight- to 14-day periods.

Longer-range weather outlooks for the April-June period call for warmer-than-normal weather over a large part of the U.S.

Natural gas storage rebuilding could be helped by the higher low temperatures associated with spring in the midrange outlook and by moderate spring warming, but could be jeopardized by extreme above-average temperatures during the summer months.

With end-of-March natural gas inventories totaling 1.4 Tcf, and end-of-injection-season total of 3.8 Tcf by late October would require 11 Bcf/d of total builds this summer, which would be 3 Bcf/d higher than last year and 1 Bcf/d higher than the five-year average, Barclays analyst Nicholas Potter said in a March 27 note.

Although natural gas production is forecast to grow to 79.5 Bcf/d, or 7% above the previous summer, the refill rate could be threatened by increase in demand of 700 MMcf/d to 1 Bcf/d due to coal-to-gas switching that is encouraged by the current natural gas price of $2.70/MMBtu, Potter said.

After climbing five consecutive weeks, Baker Hughes Inc. reported the total U.S. rig count declined two in the six-day period to March 29, standing at 993. Data was released a day ahead of normal due to the Good Friday-Easter Sunday holiday weekend.

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.