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June natural gas continues lower on revised weather forecasts

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 settled the week's opening session lower Monday, May 21, as revised weather forecasts point to larger improvements in storage injections as overall demand declines. The contract settled 3.7 cents lower on the session at $2.810/MMBtu.

An early jump in cooling demand and lingering demand for heating boosted overall demand for natural gas by 4% in the week to May 16, compared with the previous report week, and could limit storage injections in the week to May 18 following a 106-Bcf build to stocks in the week to May 11.

Early outlooks for the inventory report slated for release at 10:30 a.m. ET on Thursday, May 24, call for injections spanning the low 80s Bcf, which would compare against an 89-Bcf five-year average injection and the 74-Bcf injection reported for the corresponding week in 2017.

A possible slight widening of the year-on-five-year-average storage deficit offers some modest support, but weather forecasts going forward have been revised to include milder conditions that should eliminate heating demand and limit cooling demand, allowing for stronger storage injections going forward.

National Weather Service outlooks show above-average temperatures engulfing the country, except for the Southeast, in the six- to 10-day period and receding from the bulk of the eastern U.S. to encompass a little more than the western half of the country in the eight- to 14-day period. Average to below-average temperatures that are initially confined to the Southeast will eventually overtake a majority of the eastern U.S. into parts of Texas.

As overall demand recedes with the weather, natural gas production could ramp up with more crude oil and natural gas rigs operating in the U.S. The Baker Hughes weekly rig count report showed a gain of one rig in the week to May 18 to 1,046 rigs. The total count sits 145 rigs above the corresponding week a year earlier.

Oil-directed rigs were unchanged on the week, holding at 844, which was up 124 from the same week in 2017. Natural gas-directed rigs were up one on the week to 200 and were up 20 rigs on the year.

Natural gas supply was stalled week on week in the week to May 16, averaging 85.6 Bcf/d, as dry natural gas production slipped by 1% due largely to Northeast production declines associated with takeaway capacity reductions from the Millennium pipeline maintenance, the EIA said. Average net imports from Canada increased 1% from the previous week.

The market will keep a close eye on demand and production trends as a bellwether to impending production as the market looks for a healthy inventory ahead of the next peak demand period.

Inventories sit at 1,538 Bcf. With injections averaging 12 Bcf/d, outlooks point to an end-of-season supply atop 3.5 Tcf.

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.