Natural Gas Corner - Market Update - Very Little Reason To Be Bullish For Now

The natural gas market today fell back toward the lower end of the past 2 week trading range as increased production outweighed hotter near term weather forecasts.

It is difficult to get real time production data for the natural gas market.  Unlike the crude oil market for which the EIA published as weekly production estimate, natural gas production estimates by the EIA are typically months old.  The most recent EIA revision released last week estimated April production at 74.63 Bcf per day, just under the record high production of 74.69 Bcf reached last December.

Prior to the revision, the EIA had initially forecast that production was declining due to the drop in the natural gas rig count which fell to 221 last week, 4 rigs above the all-time low reached last April.

At some point, possibly later this year, the falling rig count will matter.  But the market focus right now is on bearish end of summer weather forecasts and rapidly filling storage.

Storage injections over the past two weeks have come in below both the pre-report estimates as well as the five year average.  Previously, weekly storage injections had come above the 5-year average for 11 consecutive weeks turning a storage deficit relative to the 5-year average of 10.5% that existed the first week of April into a storage surplus of 1.1% in last week's EIA storage report.

With 18 weeks left in the current injection season, the market will need to see continued below-normal storage injections or there could be a record amount of gas in storage at the end of October.  

Over the past 5 years, there has been an average of 2,577 Bcf of gas injected into storage over the following 18 months.  With 2,577 Bcf of gas currently in storage, there will be 3,811 Bcf of  gas in storage if the market replicates the 5-year average.

But if weather-related demand for natural gas remains soft, the market could surpass the peak storage high of 3,929 Bcf reached in 2012 later this year.

Longer term, falling rig counts, LNG exports from the U.S. beginning in late-2015, and increased power generator demand are all bullish factors for the market.

Technically, the sideways range prices have been in the past  3 months is likely a consolidation before a final price decline takes place.  

If weakness unfolds are expected, the final price drop could be a multi-year price low for the natural gas market.