Chilly spring weather to keep US gas storage surplus in retreat

Market analysts expect net injections to US natural gas storage nearly doubled in the second week of April but could still undershoot the five-year average, helping to narrow the US inventory surplus.

The US Energy Information Administration is expected to report a 44 Bcf injection to US gas storage in the week to April 12, according to the latest survey of analysts from S&P Global Commodity Insights.

The 44 Bcf injection expected by the market would amount to just over 70% of the year-ago and five-year average storage builds, both 61 Bcf, reported in the corresponding week. Assuming the survey prediction is accurate, the US storage surplus would fall narrowly to 616 Bcf, which is still 36% above average. The surplus to 2023 would also contract to 418 Bcf, or about 22% above the year-ago level, EIA data showed.

Although estimates for EIA's upcoming April 18 storage report ran the gamut, ranging from 25-65 Bcf, over half of those surveyed said they're anticipating an injection of 40 Bcf or larger. Compared with historical averages, the smaller weekly injection expected by analysts has still done little to ease supply concerns.

NYMEX

"I'm hearing more concerns about Freeport, production not falling fast enough. And there's no drivers for demand," said Phil Flynn, senior market analyst at The Price Futures Group, by telephone April 16.

"Every time you think you've got a chance to bottom out it just seems to run out of steam," he said.

In a separate conversation April 18, Stephen Schork, co-founder of the Schork Report, said he sees a one-in-eight chance the NYMEX prompt gas futures contract hits a new record low by Memorial Day.

Over the past week, the Henry Hub May gas contract has lost nearly 30 cents, or about 15%. In April 16 trading, prompt prices were off another 3-4 cents on the day to around $1.65/MMBtu. As recently as April 10, prompt prices had climbed to nearly $1.95 on high hopes for bullish inventory news from EIA.

Fundamentals

In the week to April 12, milder US temperatures -- accompanied by sharply lower residential-commercial gas burns -- were largely responsible for an overall 6.9 Bcf/d drop in US gas demand compared with the week prior. Over the same seven-day period, though, US supply fundamentals tightened, helping to partially offset weaker demand. A drop in domestic gas production and lower imports of pipeline gas from Canada combined to reduce available supply during the week by nearly 1.3 Bcf/d. On balance, the US market lengthened by nearly 5.7 Bcf/d, data from S&P Global Commodity Insights showed.

Based on changes in supply-demand fundamentals alone, the storage injection reported by EIA for the week to April 12 could be substantially larger than many analysts are currently predicting. Assuming, however, that the survey's 44 Bcf build is accurate, US stocks would rise to 2.327 Tcf, according to data from EIA.

For the week to April 19, US gas demand is already trending lower week-on-week – pointing to the likelihood for another still-larger storage injection to come. According to S&P Global's supply-demand model projection, the US inventory build could potentially double on the week to over 80 Bcf. The predicted inventory addition would compare with a five-year average injection of 59 Bcf and a year-ago build of 77 Bcf, both reported in the corresponding week, data from EIA showed.