Higher-than-Expected Injection Causes Prices to Drop

Higher-than-Expected Injection Causes Prices to Drop

Natural gas storage inventories increased by 33 Bcf for the week ending August 10, according to the EIA’s weekly report. This injection is slightly higher than the market expectation, which was an injection of 28 Bcf. The September 2018 contract was trading at $2.93 before the EIA report, similar to yesterday’s close of $2.94. Since then, prices are slightly down, with the September 2018 contract trading at $2.90 at the time of writing.

Working gas storage inventories now sit at 2.387 Tcf, which is 687 Bcf below last year and 595 Bcf below the 5-year average.

With 12 weeks left in the injection season, DI is expecting this year’s injection season inventory to end at ~3.375 Tcf. This level of inventory is a record low since 2010. However, even with inventory at record lows, the market signals comfort with this end-of-the-season level as winter 2018/19 Henry Hub closing prices as of 8/15/2018 averaged just $3.075 per MMBtu. Natural gas production averages ~80.25 Bcf/d for summer 2018 to date and is currently sitting near 82 Bcf/d. The market is confident that production will continue growing and any deficit in storage will be made up with that increased production.

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

This Week in Fundamentals
The summary below is based on PointLogic’s flow data and DI analysis for the week ending August 16, 2018.

Supply:

  • Dry gas production is up 0.46 Bcf/d week-over-week, with total dry production at 82 Bcf/d. Texas (+0.23 Bcf/d) was the main driver in the production increase, followed by the Northeast (+0.18 Bcf/d).
  • Canadian imports are down 0.11 Bcf/d week-over-week, bringing Canadian imports to 5.42 Bcf/d.

Demand:

  • Domestic natural gas demand decreased 2.76 Bcf/d week-over-week, with the decrease attributable to power burn (-2.60 Bcf/d). Total domestic demand decreased to 62.24 Bcf/d for the week.
  • LNG exports were up 0.32 Bcf/d week-over-week, while Mexican exports were down 0.14 Bcf/d.

Total supply is up 0.36 Bcf/d and total demand is down 2.87 Bcf/d week-over-week. With the decrease in demand and the increase in supply, expect EIA to report a higher injection next week. The ICE US EIA Financial Weekly Index report is currently expecting an injection of 50 Bcf for next week. Last year’s injection for the same week was 43 Bcf, while the 5-year average is 53 Bcf.

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