Natural Gas Futures Jump another 3% on Storage Data Expectations
Nat-gas climbed Thursday before the latest EIA report released, anticipated to show a smaller storage increase than the five-year average.
Quick overview
- Natural gas futures in the U.S. rose to $3.30 per MMBtu ahead of an EIA storage report indicating only a slight supply increase.
- Warmer weather forecasts are expected to drive up energy demand, contributing to the rise in gas prices.
- Current storage levels are about 5.9% above normal, but the surplus is decreasing, suggesting potential for higher prices in the coming weeks.
- Natural gas production has declined due to maintenance at export facilities and reduced demand for LNG.
Natural gas futures in the United States climbed to $3.30 per MMBtu ahead of the upcoming EIA storage report, which is expected to show only a marginal supply increase.
Gas futures climbed 2.9% on Thursday before the Energy Information Administration issued their storage report. The report should show an increase in overall inventory levels, but only a slight one. Weather forecasts point toward warmer temperatures through the coming weeks, with temperatures reaching above average and potential spiking energy needs.
As power plants meet those energy needs to deal with the hotter weather expected to spread across the United States, the demand for natural gas should increase as well. This news caused gas rates to jump and hit highs not seen since February, before the start of the Iran-U.S. conflict.
The Domestic Storage Surplus Settles
Investors will note that exceptionally high storage levels from last year have continued through 20206 so far, and the current storage surplus is about 5.9% above normal. That was for the week ending on May 29th, and the previous week showed a surplus of 6.2%. This tells us that the storage surplus is dropping, according to the EIA, and the market could see continually dropping surplus and higher prices in the coming weeks.
The average production of natural gas moved down from 190.7 bcfd in April to 109.0 in May. That drop in production is in large part due to maintenance at export facilities as well as forced production decline by companies trying to cope with falling demand for LNG.
Natural gas has now remained above $3 per MMBtu for two weeks now, and that may continue to be the case for the coming weeks, barring any unforeseen factors. This week’s storage report will heavily influence the price movement, and the Israeli ceasefire with Lebanon could factor in as well, but only marginally. For the most part, domestic LNG rates have been influenced only fractionally by events in the Middle East since February and have instead been pushed and pulled more strongly by weather forecasts and storage reports.
The EIA report for Thursday may show an increase of 99 bcf for last week. If that prediction is true then that would be a decrease from the five-week average, which is an increase of 101 bcf. We anticipate that a reading close to 99 bcf will bump the price even higher over the next few days.
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