As traders and analysts continued to work out the balance implications of a leaner-than-expected injection in the latest government inventory report, natural gas futures hovered close to even early Friday.
Holding on to the previous session’s 5.7-cent gain, the May Nymex contract was trading 0.6 cents higher at $2.755/MMBtu at around 8:45 a.m. ET.
The Energy Information Administration (EIA) on Thursday reported 38 Bcf injection into U.S. natural gas stocks for the week ending April 16, a print that came in on the low side of estimates ranging from 39 Bcf to 56 Bcf. The reported 38 Bcf injection compares with a 68 Bcf build in the year-ago period and a 26 Bcf five-year average injection.
The bullish miss from EIA is “underpinned by a broader improving gas macro,” according to analysts at Tudor, Pickering, Holt & Co. (TPH).
They pointed to strong export numbers, with recent estimates of deliveries to Mexico “holding strong” around 6.5-7.0 Bcf/d and liquefied natural gas feed gas demand totaling around 11.5 Bcf/d.
These export levels “increase our conviction around a tight summer gas market,” the TPH analysts said.
The EIA South Central offers the “most inviting backdrop” given that the Gulf Coast hosts more than 90% of LNG export capacity and “roughly one third of industrial demand,” according to the firm. The region also has “less gas-to-coal switching potential as none of the states in the region besides Texas are large generators of coal-fired power.”
This sets up the potential for stronger Henry Hub prices relative to other regions, meaning “potentially wide basis at other hubs as the South Central struggles to maintain balance,” the TPH analysts said.
Meanwhile, Bespoke Weather Services observed no notable shifts in the latest round of forecast data.
“All in all, it looks like a near normal demand regime at a time of year when normal demand is low, meaning that weather should not move the needle much over the next two to three weeks in terms of natural gas demand,” the firm said.
The $2.75 level, where prices hovered early Friday, has offered “solid resistance” for the May contract, Bespoke said.
“However, we cannot ignore the bullishness of these last few storage numbers, so our confidence in the $2.75 level holding is lower,” the firm said. “At the same time, we feel that supply/demand balances will loosen at or above this level, so it is also tougher to argue a bullish case.”
June crude oil futures were up 2 cents to $61.45/bbl at around 8:45 a.m. ET, while May RBOB gasoline was up fractionally to $1.9790/gal.
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