July natural gas futures careened through key support levels to reach a low not seen since late March, after a U.S. Energy Information Administration storage report that outlined a larger-than-anticipated and better-than-year-ago build to stocks for the week to May 26.
The contract hovered on either side of unchanged ahead of the 10:30 a.m. ET release of the latest storage data and tumbled to a $2.988/MMBtu low following the release, before closing out the session 6.3 cents lower on the day at $3.008/MMBtu.
The EIA reported a net 81-Bcf injection into natural gas inventories in the Lower 48 during the week ended May 26 that was above market expectations that called for a 75-Bcf build in stocks and the 80-Bcf injection reported for the same week in 2016, but missed the five-year average injection of 97 Bcf.
The data included a reclassification of 4 Bcf from working gas to base gas in the Mountain region that resulted in an implied flow of 85 Bcf for the week under review.
The build brought total U.S. working gas supply to 2,525 Bcf, or 370 Bcf below the year-ago level and 225 Bcf above the five-year average storage level of 2,300 Bcf.
Although the downside miss against the five-year average cut the year-on-five-year average surplus, the market was pressured by the still healthy natural gas supply and expectations for larger builds in subsequent weeks implied by the latest revisions to weather forecasts,.
The National Weather Service's six- to 10-day and eight- to 14-day outlooks show below-average temperatures across the majority of the eastern half of the country.
Below-average temperatures, given the calendar, should limit heating demand and stave off a ramp up in cooling demand, leaving natural gas available to move into storage facilities and rebuild the supply ahead of the next heating season.
"If the actual weather is in sync with what the forecasts are currently projecting Nat Gas injections into inventories are likely to rise to at least the historical normal level if not higher," Energy Management Institute principal Dominick Chirichella said. "If this pattern persists it could result in inventory levels at the end of the injection season coming in much higher than many market participants have been forecasting."
Market participants expect the steady rebuilding of the natural gas supply, with 10 Bcf/d needed over the next five months, to culminate with a near record high end-of-October supply.
Day-ahead trade was conducted at lower prices as weather moderates and natural gas futures tumble.
A loss of more than 10 cents at the Transco Zone 6 NY hub brought the index there below $2.50, while Tetco-M3 trades were nearly 5 cents lower to an index near $2.25. The benchmark Henry Hub price averaged a more- than-5-cent loss to an index below $2.95, Waha traded nearly 10 cents lower to an index near $2.65 and Chicago trades were about 5 cents lower to an index near $2.70. At the SoCal Border, deals averaged below $2.60, down about 15 cents on the session, while PG&E Gate saw a more-than-10-cent loss to an index near $3.10.
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