Natural Gas Prices Unmoved Despite Small Inventory Addition

The U.S. Energy Department's weekly inventory release showed a smaller-than-expected increase in natural gas supplies. But with inventories still 14% above the 5-year average for this time of year, the market remains oversupplied. As a result, despite the small storage addition, natural gas prices could not make much headway and stayed flat.

About the Weekly Natural Gas Storage Report

The Weekly Natural Gas Storage Report – brought out by the Energy Information Administration (EIA) every Thursday since 2002 – includes updates on natural gas market prices, the latest storage level estimates, recent weather data and other market activities or events.

The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of natural gas. It is an indicator of current gas prices and volatility that affect businesses of natural gas-weighted companies and related support plays.

Analysis of the Data: Smaller-than-Expected Injection

Stockpiles held in underground storage in the lower 48 states rose by 22 billion cubic feet (Bcf) for the week ended Aug 12, 2016, below the guidance (of 28 Bcf gain) as per the analysts surveyed by S&P Global Platts, a leading independent commodities and energy data provider.

Moreover, the increase was lower than both last year’s build of 56 Bcf and the 5-year (2011–2015) average addition of 57 Bcf for the reported week.

But in spite of past week’s bullish numbers, the current storage level – at 3.339 trillion cubic feet (Tcf) – is still up 327 Bcf (11%) from last year and is sitting 405 Bcf (14%) above the five-year average.

Natural Gas Prices Stay Flat

Natural gas prices rose Thursday following the bullish storage data but reversed the gains on Friday on lingering supply concerns. In fact, EIA estimates that natural gas inventories will reach 4.042 Tcf by the end of October – a record level for that time of the year. As a result, natural gas futures ended Friday at $2.584 per MMBtu, essentially unchanged from last week.

However, at just under $2.6 per MMBtu, the commodity is faring way better than the 17-year-lows of around $1.6 per MMBtu in the first quarter.

What’s Next?

The run up notwithstanding, natural gas prices are way off the heights reached some years back. From a peak of about $13.50 per MMBtu in 2008 to around $2.6 now, the plummeting value of natural gas represents a decline of over 80% over eight years.

But with this summer likely to turn out longer and hotter than normal, natural gas demand is expected to pick up on the back of elevated power sector consumption due to air-conditioning use. Coupled with the easing production from the major shale plays, natural gas prices are set to rise.

What’s more, rig count has been falling consistently and is now languishing at 83 – compared to more than 210 a year ago and the high of 1,606 reached in 2008. Therefore, production growth is unlikely to resume anytime soon.

The price strength translates into upside for natural gas-weighted companies including the likes of Cimarex Energy Co. (NYSE:XEC) , EQT Corp. (NYSE:EQT) , Southwestern Energy Co. (NYSE:SWN) , Cabot Oil & Gas Corp. (NYSE:COG) and Williams Companies Inc. (NYSE:WMB) .