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July natural gas slumps in opening day as lead contract

July natural gas futures took the lead from the expired June contract on the defensive, starting its run following the long Memorial Day holiday weekend sinking to a $3.142/MMBtu low and settling the Tuesday, May 30, trading session down 16.5 cents at $3.145/MMBtu.

Price pressure was exerted by weather outlooks that show below-average temperatures engulfing the eastern half of the U.S. through the six- to 10-day period, and average and below-average temperatures in the eight- to 14-day period that should limit demand for either heating or cooling and allow the natural gas supply to build at a more rapid pace.

SNL Image

SNL Image

Inventory building has been relatively slow over recent weeks. For the week to April 28, the U.S. Energy Information Administration reported a net 67-Bcf build to stocks that was above the five-year average but below the build reported for the same week in the prior year. A week later, the week to May 5 brought a 45-Bcf injection to the working gas supply that missed both the year-ago and five-year average injections. In the week to May 12, the natural gas supply built by a net 68 Bcf, an injection below both the prior-year build and the five-year average injection, and in its most recent report, the EIA reported a weekly injection of a net 75 Bcf that was below the prior-year build but above the five-year average injection of 90 Bcf.

The total U.S. working gas supply now sits at 2,444 Bcf, or 371 Bcf below the year-ago level and 241 Bcf above the five-year average storage level of 2,203 Bcf.

The still healthy surplus to the five-year average provides the market with downside pressure despite the deficit to the record year-ago supply.

Additionally, expectations for the weekly inventory report due out at 10:30 a.m. ET on Thursday, June 1, covering the week to May 26, should show a stronger injection, with early outlooks pointing to builds in the upper 70s Bcf.

"With the lower demand shoulder season still dominating the Nat Gas horizon weekly injections over the next several weeks are likely to be at least around the historical levels for the same period if not higher," Energy Management Institute principal Dominick Chirichella said.

"The prospect of the magnitude of the weekly injections increasing is sending some of the Nat Gas bulls back to the sidelines and likely attracting a modicum of new shorts entering the arena," he said.

In day-ahead trade, coming off of the three-day weekend break facing mostly milder weather outlooks, the price of natural gas moved at most major delivery hubs was lower.

Bucking the wider downtrend, Transco Zone 6 NY trades were up nearly 25 cents to an index near $2.60, but Tetco-M3 traded in line with the downtrend, sinking about 10 cents to an index below $2.35. Henry Hub trades were about 5 cents lower to an index near $3.05, Waha traded about 5 cents lower to an index near $2.75 and Chicago slumped more than 5 cents on average to an index near below $2.90. At the SoCal Border, a near 5-cent loss brought the index there to around $3.15, while PG&E Gate traded down more than 5 cents to an index near $3.30.

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 and natural gas index prices, as well as forwards and futures, visit our Commodities Pages.