Prices Fall as Temperatures Decline and Production Recovers

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Natural gas storage inventories increased 36 Bcf for the week ending July 19, according to the EIA’s weekly report. This is in line with the expected injection, which was 35 Bcf.

Working gas storage inventories now sit at 2.569 Tcf, which is 300 Bcf above inventories from the same time last year and 151 Bcf below the five-year average.

At the time of writing, the August 2019 contract was trading at $2.256/MMBtu, roughly $0.036 higher than yesterday’s close and ~$0.031 lower than last week’s.

Production saw declines in the past couple of weeks out of the GoM due to Hurricane Barry, but this production has picked back up and is working toward a complete recovery. While GoM production has started to recover over the last week, weather forecasts turned cooler and power demand decreased by over 2 Bcf/d. The combination of adding more supply to the market and taking away demand volumes has sent prices down, hitting the August 2019 contract low during July yesterday at $2.220/MMBtu. Prices for the remainder of the summer will trade on changes to the weather forecast. Should the future outlook change to warmer temperatures, expect a slight price rally. However, should the forecasts show cooler temperatures, expect continued declines.

See the chart below for projections of the end-of-season storage inventories as of November 1, the end of the injection season.

Prices Fall as Temperatures Decline and Production Recovers

This Week in Fundamentals

The summary below is based on Bloomberg’s flow data and DI analysis for the week ending July 25, 2019.

Supply:

  • Dry gas production saw an increase of 0.78 Bcf/d week over week. The South Central/Gulf region showed recovery from Hurricane Barry, gaining 0.85 Bcf/d on the week.
  • Canadian net imports dropped this week, falling 0.21 Bcf/d.

Demand:

  • Domestic natural gas demand declined 1.98 Bcf/d week over week. Cooler temperatures caused Power demand to fall 2.15 Bcf/d. Res/Com demand showed a slight gain of 0.23 Bcf/d, while Industrial demand fell 0.03 Bcf/d.
  • LNG exports saw a slight gain during the week, increasing 0.14 Bcf/d, while Mexican exports decreased 0.03 Bcf/d.

Total supply is up 0.57 Bcf/d, while total demand fell 1.86 Bcf/d week over week. With production recovering from Barry and cooler temperatures this week causing a decline in demand, expect the EIA to report a stronger injection next week. The ICE Financial Weekly Index report is currently expecting an injection of 52 Bcf. Last year, the same week saw an injection of 35 Bcf; the five-year average is an injection of 35 Bcf.

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