Natural Gas Corner - Market Update - Summer Strength To Be Followed By Seasonal Weakness

Natural gas prices remains in a 2-week sideways range supported by weather forecasts but pressured by increasing domestic storage.

Summer weather demand has been strong with power generation demand this year averaging 26.6 Bcf per day, 2.2 Bcf  per day above last year's record high level.  Upcoming demand over the next 2 weeks could spike to over 40 Bcf per day if weather forecasts prove correct.  Over the past 10 weeks, each weekly injection has fallen under the 5-year average narrowing the surplus of gas in storage relative to the 5-year average from 53% in April to 22% by the first week of July.

Countering summer demand is storage which ended this past winter at 2,468 Bcf, the second highest on record and just 4 Bcf below the 2012 high.  Even with lower injections, gas at the end of 2016 should for a second year in a row surpass the 4,000 Bcf mark.

There are 16 weeks left in the current injection season which ends the last week of October.  Over the past 5 years, an average of 71 Bcf per week has been injected into storage.  In order for storage to reach the EIA predicted high of 4,022 Bcf, an average of 47.5 Bcf per week will need to be injected over the next 16 weeks, a number that should be reached regardless of upcoming summer cooling demand.

Once summer cooling demand eases, the real test for the market will be what happens to prices if storage again reaches a new all-time high as expected.

While the forward strips might now revisit lows seen earlier this year, upcoming seasonal weakness should allow a better entry point in the market than is currently available.