After rallying the previous session, natural gas futures had reversed lower early Friday as traders continued to digest another triple-digit inventory build from the latest Energy Information Administration (EIA) storage report. The November Nymex contract was down 4.0 cents to $2.289/MMBtu shortly after 8:30 a.m. ET.
The EIA on Thursday reported a 112 Bcf injection into U.S. natural gas stocks for the week ending Sept. 27, coming in on the high side of estimates and higher than both last year’s 91 Bcf injection and the 83 Bcf five-year average.
Total working gas in storage as of Sept. 27 was 3,317 Bcf, 465 Bcf higher than last year and only 18 Bcf below the five-year average, EIA said.
“Compared to degree days and normal seasonality this week’s injection appears loose by 2.9 Bcf/d versus the five-year average,” Genscape Inc. senior natural gas analyst Rick Margolin said. “…This is the tightest the current inventory value has been to the five-year average since early October 2017. Back in December 2018 inventories reached their widest deficit to the five-year average by falling 731 Bcf below.
“This year inventories ran as much as 565 Bcf below the five-year. This eradication of the deficit has occurred in an environment where demand has been growing for power generation, residential/commercial uses” and exports. It also has coincided with curtailments in imports from Canada, according to Margolin. “During this time, production gains have more than outpaced the demand-side gains and non-production supply cuts.”
Tudor, Pickering, Holt & Co. (TPH) analysts considered it “another ugly number” from the EIA.
TPH analysts said they suspected the rally on Thursday “was primarily driven by short covering, but the market has also shown some firming in the back half of the week that improves our outlook for next week’s print. Unseasonably warm weather got even warmer as the week progressed, driving power burn up toward 37 Bcf/d over the last three days, compared to an average of 33 Bcf/d to start the week.”
Adjusting for weather, this week’s 112 Bcf injection implied the market was about 3.5 Bcf/d oversupplied, and it “looks to be loosening further, with supply up another 0.5 Bcf/d this week,” according to TPH.
Overnight weather models did reduce forecast demand compared to Thursday’s outlook, according to Bespoke Weather Services, but the forecaster does not view the latest guidance as bearish.
Models “show hints that another push of colder air could come into the eastern U.S. at the end of the 11-15 day period,” Bespoke said. “…We still forecast total demand over the next couple of weeks to be a little below normal overall, but we do acknowledge some colder/higher demand risks to our forecast out in the 11-15 day period based on the latest model projections.
“At this time, we are not expecting to see demand rise to the same levels as we saw starting the middle of October last year, however.”
November crude oil futures were up 58 cents to $53.03/bbl shortly after 8:30 a.m. ET, while November RBOB gasoline was trading about 1.9 cents higher at $1.5753/gal.
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