Gas Prices Extend Losses Following Bearish Storage Report

The EIA announced a 68 Bcf injection for the week ended May 12. The injection came in above market expectations of an average 61 Bcf and even above most forecasts which range between 47 Bcf and 66 Bcf. The report is bearish and the prompt contract (June 2017) is down 1 cent following the release at $3.179 per MMBtu, at time of writing.

Working gas storage inventories increased to 2.369 Tcf, level 375 Bcf below last year but 256 above the 5-year average. See Drillinginfo EIA’s chart below. This graphic shows projections for end-of-season inventories as of Nov 1. Two scenarios are included for summer injections (April-Oct) that result in inventories between 3.6 Tcf and 4.2 Tcf.

Natural Gas Fundamentals Month-to-Date Review

Supply: Natural gas production in May has tighten the gap from 2016 levels to 1 Bcf/d (compared to 2-3 Bcf/d from earlier this year). Lower 48 production is currently at 70.8 Bcf/d, which is the average for the last 8 months and therefore no growth.

Demand: month-to-date total demand is down 0.4 Bcf/d while temperatures transition from winter to more summer-like weather. Domestic demand is down 2.4 Bcf/d, but LNG and Mexican exports are up 2 Bcf/d in May from a year ago.

Storage: inventory levels normalized following a mild winter, but the lack of production growth will hit the market after the shoulder season ends and demand, particularly from the power sector starts to materialize.

 

Drillinginfo has been expecting a run in gas prices, similar to last week’s action, in order provide price levels necessary to incentivize production growth. However, bearish fundamentals from the demand sector in the short run continues to put a cap in gains.

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