EIA Report Reveals Smaller-Than-Expected Natural Gas Build, But Is It Enough To Turn The Tide In Prices?

Contrary to the very bearish EIA report last week, today's report showed a natural gas build that was a little smaller than market expectations, with an injection of 55 bcf last week compared to the consensus estimate around 60 bcf. 

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Part of the miss came from over-estimating the build in the South-Central region. We believe the record cool temperatures a couple of weeks ago led to the big bearish miss last week, as temperature extremes in either direction are often more difficult to model. This may have led to the over-estimation this week. Last week's weather was not hot by any means, but did not have nearly the same level of cooler air around as the prior week. 

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Natural gas prices responded to the number by advancing higher, with the September contract up nearly 2.5% as of this writing. 

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While we are around 10 cents off the lows, the downtrend remains intact for now. Could today's number be a sign that the paradigm may finally be shifting? That may be a bit premature. While it did reveal a lower-than-expected build, the supply/demand balances implied are not exactly bullish when looking at the same week in previous years. 

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We also are faced with the likelihood of a couple of larger builds in the next two weeks, thanks to the sharp decline in LNG exports due to Sabine maintenance, which typically lasts around three weeks. 

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With all that said, we continue to be locked into a weather pattern favoring hotter than normal conditions, i.e. more demand for natural gas, as measured by our Gas-Weighted Degree Days. 

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The pattern has been hot-dominated, however, since the final third of June, and it hasn't been enough to stop the downward slide. The flavor of this pattern is a bit different, though, with more emphasis in key regions of the South, such as Texas, where the hottest weather of summer is on the way. 

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Time will tell if this new pattern sticks, and is enough to finally tighten balances to the point where we can put together and sustain a rally as we move closer to a time when seasonality begins to turn bullish, typically just after the Labor Day holiday.