Natural Gas Plunges On Weather Worries, Production Growth

The U.S. Energy Department's weekly inventory release showed a larger-than-expected increase in natural gas supplies. Bearish weather predictions and strength in the commodity’s production also pressured the fuel’s price, which lost around 4.8% for the week.

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: A Larger-than-Expected Rise in Storage

Stockpiles held in underground storage in the lower 48 states rose by 63 billion cubic feet (Bcf) for the week ended Aug 31, above the consensus market guidance of 60 Bcf gain. The injection also exceeded last year’s build of 60 Bcf though it was below the five-year (2013–2017) average addition of 65 Bcf for the reported week.

Despite past week’s larger-than-anticipated supply addition, the current storage remains well below benchmarks. At 2.568 trillion cubic feet (Tcf), current natural gas inventories are 590 Bcf (18.7%) under the five-year average and 643 Bcf (20%) below the year-ago figure.

Fundamentally speaking, total supply of natural gas averaged around 87.9 Bcf per day, essentially unchanged on a weekly basis as the slight increase in production was offset by lower Canadian imports. Meanwhile, daily consumption fell 1.6% to 75.5 Bcf on lower power generation demand.

Natural Gas Price Falls

Following the storage report, prices lost 4.8% last week to settle at $2.776 per MMBtu on Friday. Apart from the headline miss, investors were also spooked by forecasts of moderating weather in the next few weeks that could lead to decrease in the heating fuel’s demand. Unabated production from the Marcellus and Utica shale regions played further spoilsport. In fact, dry gas output in the United States averaged 82.8 Bcf per day over the reporting week, up 15.5% from the year-ago level.

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