Editor's Note:
June natural gas futures were higher Thursday, May 17, despite the report of the first triple-digit and larger-than-anticipated build to natural gas inventories for the week to May 11. The contract settled the session with a 4.4-cent gain at $2.859/MMBtu while trading a range from $2.780/MMBtu to $2.862/MMBtu.
The U.S. Energy Information Administration reported a net 106-Bcf injection into natural gas inventories in the Lower 48 during the week ended May 11. The build was above the 104-Bcf consensus expectation ahead of the report's release and was above the 89-Bcf build reported for the week to May 4 and respective year-ago and five-year average injections of 64 Bcf and 87 Bcf.
The injection brought total U.S. working gas supply to 1,538 Bcf, or 821 Bcf below the year-ago level and 501 Bcf below the five-year average storage level of 2,039 Bcf.
Despite the improvement to the working gas supply, the lingering deficits and weather outlooks that imply a ramp-up in cooling demand provided an undercurrent of support for the market.
Warmer weather that generated early cooling load but also encouraged a sharp decline in heating demand, which increased the pace of storage building in the week to May 11, is expected to continue and push cooling demand steadily higher.
The National Weather Service continues to see above-average temperatures gripping nearly the entire country through the six- to 10-day and eight- to 14-day periods.
"We continue to look for the possibility of a two-sided trade because projected warm weather suggests low heating demand, but the building of cooling demand could have a mixed impact on the rate of subsequent storage injections," FX Empire analyst James Hyerczyk said in a May 17 note.
Although currently focused on weather and demand, downside pressure is supported by the anticipated increase in production as implied by a steadily rising U.S. combined rig count. For the week to May 11, the total number of rigs in the U.S. was up 13 to a total of 1,045, which is 160 rigs above the corresponding week a year earlier.
Natural gas inventories are expected to ascend through the injection season and need to climb by an average of about 12 Bcf/d to reach above 3.5 Tcf by early November, the American Gas Association said.
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