Will the EIA douse the flames of natural gas the same way it did with oil?
With the U.S. Energy Information Administration due to report another week of storage builds in natural gas, speculation is widely swinging between a somewhat mild rise in stockpiles due to a strong week of air-conditioning demand and a bigger surge than contained in the previous report.
EIA Report Could Show Large Gas Build
If the build for the week ending on May 31 is indeed much larger than the 114 billion cubic feet reported in the prior week, it would mark the second day in a row that the EIA had poured cold water on the energy markets it oversees.
The Energy Information Administration stunned the oil market on Wednesday, reporting a huge of nearly 7 million barrels—versus an expected drawdown of around 850,000 barrels. That sent already tottering and prices further into bear-market territory.
So far, for the due at 10:30 AM today, the consensus of industry analysts polled by Reuters is a storage rise of 111 bcf. While the growth would be 3 bcf lower than in the previous week, it’s still higher than the 93 bcf seen during the same week a year ago, and the five-year average injection of 102 bcf.
Record Output, Funky Weather Weigh On Prices
From a historical perspective, the higher build will be due to the record high production of natural gas this year, not unlike the record high output in U.S. crude, which the EIA estimated on Wednesday has reached 12.4 million barrels per day.
According to weather models, temperatures last week were somewhat hotter than normal with 52 cooling degree days (CDDs).
CDDs measure the number of degrees a day’s average temperature is above 65 Fahrenheit (18 Celsius), and are used to estimate demand to cool homes and businesses.
The 30-year normal for this time of year is 42 CDDs, although last week the number spiked to 70 CDDs.
Said Dan Myers of Gelber & Associates, a research house on natural gas in Houston:
“Last week consisted of record Southeast heat and the strongest power generation of the season so far but the timing of the Memorial Day holiday weekend likely prevented demand from climbing as much as it otherwise would have.”
Myers said Gelber’s own forecast for last week’s stockpile build was 106 bcf.
“If this injection does come in on the lower end, the market may find that it oversold in reaction to last week’s striking number. However, a larger storage addition will send prices spiraling further downward.”
A Spiraling Downward Market
“Spiraling downward” is nothing new to natural gas prices, which are on course for a third straight week of losses as mild pre-summer weather—until last week—had caused many funds to dump the long positions they once held on the market.
NatGas Daily Chart – Powered by TradingView
From a 2019 high of $3.722 per million metric British thermal units struck on Jan. 15, the market fell to the year’s low of $2.355 per mmBtu this week. That’s a loss of 37% and it’s only been six months into 2019, with another half-year to go.
Investing.com’s Daily Technical Outlook has “Strong Sell” recommendation on natural gas, projecting a support level as low as $2.275 per mmBtu. Based on Wednesday’s settlement of $2.378 per mmBtu for the front-month on the New York Mercantile Exchange’s Henry Hub, that spells a loss another 4% or so.
Scott Shelton, energy futures broker at ICAP in Durham, North Carolina, observed that it was hard for the market to rally even on positive weather like last week’s when gas funds were in a sell-first-question-later mode.
“The market remains in a ‘funk’ and unable to recover from current levels with signs of moderation in the weather, Commodity Trading Advisor selling and the ‘damaging’ 114 injection last week.”
Dominick Chirichella, director of risk and trading at the Energy Management Institute in New York, concurred with that view.
“With the short-term temperature forecast still showing no signs of a major warm-up over the main Nat Gas consuming regions of the country, the weekly injections are likely to remain at an above normal level for the short to even medium term.”