Carry That Weight – U.S. Natural Gas Market Begins Injection Season with Record Storage Overhang

U.S natural gas storage inventories ended the winter heating season at a record high for this time of year of 2,480 Bcf as of April 1, 2016. Yesterday (Thursday April 14) the Energy Information Administration (EIA) reported that U.S. natural gas storage fell a notch as of April 8 to 2,477 Bcf or 956 Bcf (63%) higher than the corresponding week last year. CME/NYMEX Henry Hub natural gas futures prices for May delivery closed at $1.970/MMBtu yesterday, 56 cents lower than last year at this time. Moreover the current 12-month strip is averaging $2.48, 32 cents lower than last year at this time. In today’s blog, we look at how inventories got here and implications for the summer market.

This is our latest update examining the fundamental factors influencing the U.S. natural gas market – particularly the supply/demand balance. The last time we looked at the supply/demand balance was in early February (2016) in Hot Stuff. At that time, production was near record highs, the storage surplus was still growing rapidly and prices had not yet found a bottom. About a month later in early March, we revisited storage levels in Nat Gas Storage Limits. Now, with the traditional winter heating (withdrawal) season behind us as of March 31, it’s time to look at where inventories are heading into injection season and the supply/demand numbers driving the market.

Figure 1 below shows weekly EIA natural gas stockpile levels starting November 1, 2015, the beginning of the traditional gas winter withdrawal season, up through the week of April 8, 2016. The weekly inventory number for the current year is represented by the solid orange line, while the dotted orange line is our current projected inventory based on weekly storage changes estimates from NATGAS Billboard as of the April 14, 2016 report. The current year is shown in the context of the continuous five-year minimum-maximum range (blue shaded area), five-year average (blue line), and year-ago stocks (green line).

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