A Closer Look At Yesterday's Bearish Natural Gas EIA Report

As bearish as the environment has been in the natural gas market for quite a while, yesterday went to a new level after a very bearish EIA report, highlighting a build of 120 bcf for the week ending 6/19.

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This was well above our estimate, and above even the highest market estimates we saw. The shock waves from the report sent prices tumbling, with the prompt month July contract falling well under the long-running support level around 1.60, settling just over 1.48 on the day.

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What drove the miss, and is it an aberration, or something that may show up in subsequent reports as well? First of all, the week ending 6/19 was a very low demand week, in terms of the weather pattern.

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When weather demand is at very high or very low levels, you sometimes get some quirky numbers, as the relationship with natural gas consumption is not perfectly linear. On this front, we see improvement, as the upcoming pattern is forecast to run well above normal in terms of demand, thanks to hotter weather in the Midwest and East driving Gas-Weighted Degree Days (GWDDs) higher.

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Tame weather alone, however, does not explain the miss, as, even on a weather-adjusted basis, the supply/demand balance reflected was much weaker than the prior three weeks.

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LNG volumes were lower for the week, and production slightly higher. These two factors, according to our data, accounted for roughly 5 bcf for the week as a whole. This, too, has shown some degree of improvement this week. While production has held flat to even slightly lower, LNG volumes have shown a modest increase.

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Even factoring in all that we discussed above, we struggle to reconcile the build coming in as high as it did. The data clearly is telling us the next week's number will not reflect balances as weak as yesterday's, and to be clear, yesterday's report could simply be an aberration, given that it doesn't fit with what we saw the prior three weeks, balance-wise, but we need to see how the data shakes out next week before we can make a definitive call, both on the fundamentals side as well as in the weather pattern. For active natural gas traders, access to this data is critical in decision-making.