Houston — On its first day as the prompt month, the NYMEX July natural gas futures contract slid 14.1 cents to settle at $2.706/MMBtu on Thursday, as the market reacted to government data that showed a build to storage stocks well above expectations.
US natural gas in storage rose 112 Bcf to 2.101 Tcf in the week ended May 22, the Energy Information Administration said Thursday, well above consensus expectations of an injection of 97-101 Bcf.
"This action we saw today comes after a much larger-than-expected build," said Gene McGillian, senior analyst at Tradition Energy. "It really points out the market's vulnerability when pushing above that $3[/MMBtu] level."
McGillian, who has argued before that market fundamentals did not support levels above $3/MMBtu, noted that production growth continues to surprise. Despite a sharply lower rig count, "the market is showing that we still have a lot of gas coming out of the ground," he said.
For a genuine rally, McGillian said, the market would need to see "sustained periods of really hot weather" to spur cooling demand. "Barring really hot weather, I think we're back to this trading band we've seen over the past couple of months."
Kent Bayazitoglu, head of energy market analytics at Gelber & Associates, offered a similar explanation for Thursday's price action.
"A surprisingly large injection has taken the market down a notch to its lowest prices since late April," he wrote in daily commentary. "The market remains oversupplied and has yet to shift itself fundamentally to justify higher prices."
Bayazitoglu said that while it was hard to say why the injection was so much higher than expected, it was "very bearish."
Gelber's modeling suggests that the market is oversupplied by about 2 Bcf/d in the month of May, he added.
The National Weather Service, in its eight- to 14-day forecast, called for an elevated probability of above-normal temperatures across large parts of the Northeast, Southeast, Midwest, Rockies and the West. It also called for an elevated probability of below-normal temperatures across parts of Texas and New Mexico.
The July gas futures contract ranged from a floor of $2.700/MMBtu to a ceiling of $2.790/MMBtu on Thursday.
The NYMEX settlement is considered preliminary and subject to change until a final settlement price is posted at 7 pm EDT (2300 GMT).