Inventories

Despite a few weeks of colder-than-normal temperatures across much of the United States, natural gas inventories are slow to drain, which has kept downward pressure on natural gas prices. According to one energy analyst, the current depression in natural gas prices is likely to continue at least into the spring.

The natural gas industry received news Thursday morning of a stout 105 Bcf build in storage inventories for the week ended May 30. However, despite the significant injection, July natural gas futures bulls refused to take a breather as the prompt-month contract recorded a regular session high of $12.539 before closing out the day at $12.519, up 14 cents from Wednesday’s finish.

Saying its storage inventories are at or near reservoir guidelines, CIG declared a Strained Operating Condition (SOC) Thursday that will be in effect until further notice. “CIG’s ability to absorb imbalances caused by mismatches between scheduled receipts and deliveries or those imbalances arising from variations in actual gas flow from scheduled quantities is extremely limited,” the pipeline said. “This limitation includes capacity to handle storage injections in excess of each storage shipper’s Available Daily Injection Quantity (ADIQ) or inventory levels above Maximum Available Capacity (MAC).” Under the SOC, CIG said, injection rates in excess of ADIQ and/or inventory levels in excess of MAC are subject to unauthorized overrun charges.

Natural gas inventories were up last year on warm winter temperatures and a modest increase in domestic marketed production, which lead to a decline in the average wellhead gas price, according to the Energy Information Administration’s (EIA) “Natural Gas Annual 2006,” which was released last week.

Natural gas inventories were up last year on warm winter temperatures and a modest increase in domestic marketed production, which lead to a decline in the average wellhead gas price, according to the Energy Information Administration’s (EIA) “Natural Gas Annual 2006.”

September natural gas futures staged a stout 29.1-cent advance Monday to settle at $6.499, and for the moment all concern of bin-busting inventories and low demand have been put on the back burner. The latest government figures show that funds and managed accounts increased their short holdings by more than 20%, thus adding to the overwhelming short holdings (and number of ultimate buyers) of speculative accounts.

The Energy Information Administration’s (EIA) Short-Term Energy Outlook for July pretty much mirrors its June outlook, with the agency projecting an annual increase of 4.3% in natural gas consumption and nearly flat production. It expects average spot prices in the third quarter to be slightly more moderate than those in the second quarter due in part to an anticipated return of near-normal weather.

The Energy Information Administration’s (EIA) Short-Term Energy Outlook for July pretty much mirrors its June outlook, with the agency projecting an annual increase of 4.3% in natural gas consumption and nearly flat production. It expects average spot prices in the third quarter to be slightly more moderate than those in the second quarter due in part to an anticipated return of near-normal weather.

Look for lower natural gas prices in the third quarter compared to the second due to high storage inventories, strong production in the Rockies and Texas and liquefied natural gas (LNG) supplies, which tend to peak in the summer months, said Canaccord Adams in a note last week.