Natural Gas: Look Out Below?
Yesterday’s US Energy Information Administration (EIA) natural gas inventory report revealed some very important information…
For the week of May 16th, working gas in storage rose by 106 billion cubic feet (bcf).
The inventory injection was above analysts’ consensus estimate of a 103 bcf build.
Look at what the news did for the price of natural gas…
As you can see, investors responded in a decidedly negative fashion to yesterday’s news. Natural gas fell by $0.11 (-2.47%) to close near multi-week lows of $4.35 mmBtu.
Why such a bearish response?
Not only were last week’s injections above analyst estimates, but they were well above the 5-year average build of 87 bcf and last year’s build of 89 bcf. The huge storage addition supports the idea that producers will be able to get US natural gas inventories back to normal levels at 3.8 trillion cubic feet (tcf) area by the next heating season.
As you may know, there’s a lot of concern amongst energy experts about the current state of natural gas inventories. A brutal winter sent storage levels to 11-year lows at 800 bcf a few months ago.
Plenty of analysts (including myself) are concerned natural gas storage levels won’t rise to acceptable levels by Fall. Even though last week’s storage injection was rather large, total inventories are still 37.9% below last year’s levels and 42.7% below the 5-year average.
Let me show you what I mean…
As you can see in the blue line above, this year’s inventory level is turning up. But also notice how far below the gray shaded area it still is. In case you’re unaware, the shaded area represents the 5-year average storage range.
Clearly, natural gas producers still have a lot of catching up to do!
What does all this information mean for the price of natural gas?
Last week’s big build will certainly put a damper on bullish activity for a few days. In fact, I wouldn’t be surprised to see the commodity drop into the $4.20 range in the near future.
However, bulls still have the upper hand in the long run…
With the summer cooling season right around the corner, there’s a risk of above average temperatures keeping storage injections low. Energy investors are keeping a close eye on the National Oceanic and Atmospheric Administration’s (NOAA) 10-day forecast.
Speaking of which…
Above average temperatures are set to consume the majority of the nation over the next 6-10 days. It will be very interesting to see how this warm weather affects weekly storage injections.
And that’s not all…
Hurricane season is almost here. If a storm runs through the Gulf of Mexico over the next few months, it will wreak havoc on natural gas production coming out of the area. It’s not unusual to see well shut-ins last a week or more after a hurricane sweeps through.
Bottom line…
Last week’s bigger than expected storage injection is keeping bulls at bay. However, there’s a lot that can happen over the next few months to bring bulls rushing back into the market!
Until Next Time,
Justin Bennett
Category: Energy, Natural Gas
