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July natural gas extends decline amid lack of fundamental support

July natural gas futures extended their retreat at midweek amid a lack of fundamental support. Sinking to a $3.061/MMBtu low, the front-month contract settled 7.4 cents lower on the session at $3.071/MMBtu.

Market participants continue to consider weather and the demand it will foster as key motivators for price movement, and are finding a lack of support from the major pricing signal to drive the market higher.

Forecasts from the National Weather Service for the six- to 10-day and eight- to 14-day periods show below-average and average temperatures engulfing the majority of the eastern half of the country.

SNL Image

SNL Image

As forecast, weather should keep heating demand at a minimum, while cooling demand should be staved off by the mild conditions in the major cooling regions.

A lack of demand should allow for natural gas storage building to improve its pace, but not before another comparatively small injection for the week to May 26.

The U.S. Energy Information Administration reported a net 75-Bcf injection into natural gas inventories in the Lower 48 during the week ended May 19 that was above market expectations that called for a 70-Bcf build in stocks, as well as the 71-Bcf injection reported for the same week in 2016, but missed the five-year average injection of 90 Bcf.

The build improved the total U.S. working gas supply to 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.

Estimates ahead of the release of the latest storage data from the EIA due out at 10:30 a.m. ET on Thursday, show the expectation for builds spanning 70 Bcf to 80 Bcf, with consensus formed at a 75-Bcf injection into the gas supply.

A build at consensus would drive the total working gas inventory to 2,519 Bcf, but comparisons to the 97-Bcf five-year average injection and the 80-Bcf build reported for the corresponding week in 2015 would mean a reduction in the year-on-five-year average surplus to 219 Bcf, while the year-on-year deficit would widen to 376 Bcf.

Despite the widening of the year-on-year deficit, the ongoing surplus to the five-year average remains a counter weight as traders look to a ramp up in injections with the moderating weather and the anticipated demand erosion to come.

"Summer-like weather is at least moving into the western 40 to 50 percent of the country but the large population area east of the Rockies is still mostly expecting colder than normal temperatures through the first half of June," Energy Management Institute principal Dominick Chirichella said.

"Until there is a decided shift in the weather across the US it is going to be difficult for the market to move into any sort of uptrend pattern," he said.

Price support was lacking in the day-ahead markets as weather and natural gas futures' retreat combined to weaken the value of the Thursday product.

Transco Zone 6 NY trades were about 1 cent lower to an index below $2.60, Tetco-M3 traded nearly 10 cents lower to an index near $2.25, Henry Hub trades were about 5 cents lower to an index below $3/MMBtu, Waha gave back nearly 5 cents to an index near $2.70 and Chicago traded down more than 10 cents to an index near $2.75. At the SoCal Border, trades were nearly 5 cents lower to an index near $2.75 while PG&E Gate stumbled about 10 cents to an index near $3.20.

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.