Higher-Than-Expected Storage Build Pressures Natural Gas Prices

Futures contracts for U.S. natural gas traded down following the release of the latest energy storage data by the EIA, which indicated an unexpectedly large injection of natural gas into storage facilities. Specifically, the data revealed that 61 billion cubic feet of natural gas had been added to storage during the latest reporting period, more than expected. This means that natural gas supplies remain robust and have been growing at a healthy rate, and investors sold off their natural gas futures positions.

The storage build indicated that production has been robust despite the summertime temperatures boosting electricity consumption.

Storage Growth Outpaces Market Expectations

Prior to the EIA’s report on its weekly data, the consensus forecast for the number was for a smaller injection into storage. With the actual injection coming in at 61 Bcf, which was higher than expected, there is confirmation that the U.S. natural gas market is still adequately supplied.

The fact that a larger injection into storage has occurred is typically considered bearish since it is a sign that there is more gas being put into storage than expected, thus alleviating worries of any potential shortages.

Futures Decline After Report Release

The natural gas futures were immediately driven down by the news release. The news release was interpreted as being a signal that the supply is sufficient even during the seasonal demand.

Weather forecasts show hot weather in some regions of the United States, leading to higher electricity and thus natural gas demand. However, the effect of the larger buildout of the storage facilities outweighed the effect of the hot weather.

Supply Remains Comfortable Despite Summer Demand

The storage reports prove the level of sensitivity concerning the current situation with natural gas. Despite the fact that warm weather creates an additional demand for production of energy, there are enough resources and injections in storage facilities to ensure availability of natural gas.

Weekly storage reports are observed by all players in the market since these reports show the level of interaction between supply and demand. Injections higher than expected regularly cause price fall since there are no problems with shortage.

Traders Focus on Weather and Upcoming Storage Reports

As far as the future is concerned, natural gas prices are anticipated to continue being affected by two main drivers – weather outlooks and upcoming EIA storage reports.

In the case when unusually high temperatures cause an increase in power generation needs, natural gas usage might pick up and thus slow down the rate of inventory increases. Nevertheless, should supply stay higher than demand, stocks will be increasing, and it would not result in a noticeable growth in prices.

In any case, the recent EIA report has helped to confirm that there are enough natural gas supplies in the United States, and traders have re-evaluated the outlook of the market accordingly.