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August gas recovers as healthy storage counters tighter market balance

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August gas recovers as healthy storage counters tighter market balance

Augustnatural gas futures were higher in the week's closing session Friday, July 22,with the support of warm weather, shrinking storage overhangs and steadyproduction. The contract grew to a $2.795/MMBtu intraday high and settled 8.5cents higher at $2.777/MMBtu.

Themarket responded lower when the U.S. Energy Information Administration reporteda modest 34-Bcf injectioninto inventories for the week to July 15 that improved the total working gassupply to 3,277 Bcf. The small addition cut storage overhangs to 471 Bcf abovethe year-ago level and 559 Bcf above the five-year average storage level of2,718 Bcf, evidencing a tightening of the supply/demand balance that providesan undercurrent of support for values.

TheEIA said that for the review week to July 20, from the power-generating sectorrose 4% from the previous week, helping to support a week-on-week gain in totalU.S. natural gas consumption of 2%.

Atthe same time, natural gas production at 80.0 Bcf/d was unchanged on the week.

Marketparticipants are looking to weather for additional support to drive thecontract price higher and found expectations for above-average temperatures inthe East, South and West in both the six- to 10-day and eight- to 14-dayprojections enough to keep the natural gas price elevated.

"Thenatural gas market is rebounding from the lows set on Thursday as a renewedeffort to rally on the smaller-than-expected 34 bcf net injection into USnatural gas storage for last week and the power sector demand associated withthe current hot temperatures," Citi Futures analyst Tim Evans said.

Evanssaid with storage for last week still 471 Bcf higher than a year ago, the$2.88/MMBtu valuation on July 21, 2015, is an upper limit on "fair value"for natural gas. "The market can certainly probe beyond that level on atemporary basis, but will have difficulty holding a premium in our view, as wasthe case at the end of June," he said.

Inday-ahead trade prices defied the influence of weekend inclusion as tradersbooked product for Saturday-through-Monday delivery at mostly higher prices. Demandsupport continues from weather.

TranscoZone 6 NY traded more than 10 cents higher to an index near $2.90 and Tetco-M3gained nearly 10 cents to an index around $1.60. A similar gain at thebenchmark Henry Hub drove the index there atop $2.75. Waha trades were morethan 5 cents higher to an index atop $2.70 and Chicago added nearly 10 cents toan index around $2.80. In the West trades were more than 50 cents higher to anindex near $3.45 at the SoCal Border hub and more than 10 cents higher to near$3.15 at PG&E Gate.

Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including our power,naturalgas and coalindex prices, as well as forwardsand futures,visit our Commodities Pages. To view detailed EIA Weekly Natural Gas Storagedata, go to our Natural GasStorage Page.