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Warm outlook supports June natural gas futures despite larger storage injection

Editor's Note: Please be advised that S&P Global Market Intelligence will no longer publish daily articles on price trends in the U.S. natural gas, electricity and emissions markets beginning June 1, 2018. Pricing data for these energy markets will continue to be available on the Market Intelligence platform.

June natural gas futures were higher despite a larger-than-anticipated and better-than-average storage injection reported by the U.S. Energy Information Administration at midmorning Thursday, May 10. The contract surged past key resistance points to post a $2.820/MMBtu better-than-one-week high and settled the session 7.7 cents higher at $2.814/MMBtu.

The EIA reported a net 89-Bcf injection into natural gas inventories in the Lower 48 during the week ended May 4 that was at par with consensus and above respective year-ago and five-year average injections of 49 Bcf and 75 Bcf, respectively. The injection brought total U.S. working gas supply to 1,432 Bcf, or 863 Bcf below the year-ago level and 520 Bcf below the five-year average storage level of 1,952 Bcf.

Despite the build, the market responded bullishly as participants consider weather forecasts and anticipate a relatively slow pace of storage building as cooling demand looks to kick in earlier than usual.

Revised National Weather Service projections show above-average temperatures remaining dominant across the country through both the six- to 10-day and eight- to 14-day periods, even as the scope of average temperatures expands from small patches of the Southwest and Midwest in the near term to a few more areas of both regions further out. Below-average temperatures will initially appear over a portion of California but should disappear in the outlook for the extended period.

Longer range, above-average temperatures would translate to a hot start to the summer season, likely generating demand for cooling that would limit the amount of natural gas available to be moved into underground storage facilities. AccuWeather's latest seasonal forecast anticipates volatile weather patterns over the key cooling Northeast and mid-Atlantic regions over this summer, with generally warmer-than-usual conditions likely by the end of June.

Stronger cooling demand signaled by the warmer weather outlooks could limit the pace of storage building even as natural gas production implied by the U.S. rig count looks to remain robust. The combined oil and natural gas rig count in the United States was up 11 in the week to May 4 to 1,032, according to the latest North American Rotary Rig Count. The total count sits 155 rigs above the corresponding week a year earlier.

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.