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August natural gas sinks as market doubts weather support

Naturalgas futures' struggle to break key support continues as the market reversedprior gains as the fresh workweek began. Focused on a healthy natural gasinventory despite a string of storage injection misses against expectations andhistorical averages is preventing a breakout to the upside that is otherwisesupported by weather, demand and a tightening of the supply/demand balance.August futures moved higher early but reversed course, trading as low as$2.696/MMBtu and finished 9.9 cents lower at $2.702/MMBtu.

Naturalgas inventories sit at 3,179 Bcf, or 538 Bcf above the year-ago level and 599Bcf above the five-year average storage level of 2,580 Bcf, after a small39-Bcf injection intoinventories in the week to July 1 that was below expectations and well belowhistorical averages.

Thebuild was above the previous week'sinjection of 37 Bcf and should be bested by this week's reported build seen ataround 60 Bcf, according to an early survey of analysts and traders looking atthe fundamentals during the review week to July 8.

Weatherhas failed to generate the kind of demand the market has been anticipating. TheU.S. Energy Information Administration in its latest weekly update said overallU.S. natural gas consumption fell by 4% week over week, from 61.5 Bcf/d to 59.1Bcf/d, with power burn notching a 5% decline versus the week-ago level as itslid from 34.0 Bcf/d to 32.3 Bcf/d.

Weatheroutlooks continue to show above-average temperatures for key cooling regionsthrough the end of the month, while longer-range outlooks suggest heat movingthrough the remainder of the summer cooling season. Still, the market isquestioning the ability of the weather to drive sufficient enough demand tosubstantially erode the natural gas inventory.

Despitethe slow rate of storage injections, the EIA still expects an end-of-seasonsupply near historical highs atop 4.1 Tcf.

Spot-gasmarkets were higher in the week's opening session as traders booked the Tuesdayproduct at prices supported by weather and demand projections.

TranscoZone 6 NY deals were stronger by about 40 cents to an index near $2.05, andTetco-M3 traded about 10 cents higher at an index near $1.45. At the Henry Hub,deals were up about 10 cents to around $2.85, Waha added about 10 cents to anindex around $2.70, Chicago advanced more than 10 cents to an index atop $2.75,while in the West, SoCal Border traded more than 15 cents stronger to near$2.80 and PG&E Gate traded about 25 cents higher to an index near $2.95.

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 Gas Storage Page.