Natural Gas Corner - Market Update - Bullish/Bearish Factor Review

Natural gas prices have begun trend lower from the price highs set in late-April/early May as decreased weather demand has weakened the market.

Storage injections made over the first seven weeks of the injection season which began the first week of April have been fairly low totaling 286 Bcf (billion cubic feet), 48 Bcf or 14% below the 5-year average.  However, gas in storage at the end of the past winter was the second highest on record at 2,468 Bcf, falling just 4 Bcf short of the previous record set in 2012.  

 In 2012, 1,430 Bcf of gas was put into storage between April 1st and October 31st in comparison to the 10 year average of  2,102 Bcf.  Therefore, storage injections during this upcoming summer could be historically low as current gas in storage is near a record high.

The EIA in the May Short Term Energy Outlook increased their end of year storage forecast for natural gas by 46 Bcf to 4,168 Bcf, 151 Bcf above last year’s record high.

Tempering the bearish storage outlook has been summer weather forecasts which are expected to be above-normal across much of the U.S. during June and July boosted demand of natural gas for cooling.  Upcoming summer demand for power generation could surpass the summer 2012 high of 29.32 Bcf per day.  But temperatures will need to rise as cooling demand during May has been tepid at best.

Another supportive factor for the market could be the steady decline in U.S. production which fell to a new low for 2016 in May.  Dry-gas production reached a record high of 73.8 Bcf per day in February but has since declined to 70.3 Bcf per day according to Bentek, a drop of 3.5 Bcf per day or 4.7%.  The drop in the natural gas rig count from 1,606 in 2008 to 87 in the most recent Baker Hughes report could finally be affecting production longer term. 

The seasonal price trend for natural gas suggests end of summer price weakness as summer cooling demand eases.  Whether or not new prices low are set will depend on upcoming  summer cooling demand and production. 

However, given that the natural gas market fell to a new 18-year low in early-March at the 1.611 level, the upcoming post-summer low could be a multi-year price low for natural gas prices.