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Gas Prices Up Following Bullish Storage Build and Contract Expiration Day

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Natural gas storage inventories increased by 17 Bcf for the week ended July 21, per EIA. The report is bullish with the build coming below most market expectations, which were calling for an injection higher than 20-Bcf.
The Henry Hub prompt contract (August 2017) is up $0.06 following the EIA report to $2.985 per MMBtu at time of writing.

Working gas storage inventories increased to 2.990 Tcf, level 302 Bcf below last year but only 111 above the 5-year average. The gap to both historical averages continues to tighten. 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 4.01 Tcf. (The high end of the range was as high as 4.2 Tcf when the injection season started)


This Week In Fundamentals

The summary below is based on PointLogic’s flow data and DI analysis for the week ending 7/27.

Supply: total supply is down 0.5 Bcf/d week over week due to a decrease in Canadian imports. Dry Gas production is up slightly this week by 0.08 Bcf/d to 72.35 Bcf/d. In July, production has remained above the 72 Bcf/d mark, which is an increase of almost 2 Bcf/d from January levels and also 0.5 Bcf/d compared to July 2016. However, year-to-date production remains down by 1.8 Bcf/d. DI expect gains in production to continue throughout the rest of 2017, particularly in 4Q when pipeline capacity additions come in service from the Northeast.

Demand: power burn leads the decrease in total demand this week, down 0.7 Bcf/d. Cooler temperatures pushed demand for power down by 1 Bcf/d, but exports increased by 0.3 Bcf/d. Exports to Mexico have been strong this week averaging 4.5 Bcf/d, up 0.2 Bcf/d week-on-week.

Storage: an injection like this week (20s Bcf) is expected in next week’s storage report as the supply and demand balance remained unchanged.

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