EIA weekly natural gas storage report likely to show widest deficit of 2022

Hot weather across the sunbelt states likely limited net injections to US gas storage during the final week of May, widening this season's inventory deficit again as gas demand continues to outpace supply.

The US Energy Information Administration this week is expected to report a 78 Bcf injection to US gas storage for the week ended May 27, according to a survey of analysts by S&P Global Commodity Insights. Responses to the survey were reported in a slightly narrower range this week with expected injections ranging from 68 Bcf to as much as 89 Bcf. The EIA plans to release its weekly storage report on June 2 at 10:30 am ET.

An inventory build of 78 Bcf would register well below the 2021 and five-year average injections of 100 Bcf for the corresponding week. Assuming the survey prediction is correct, US storage levels would climb to 1.890 Tcf, expanding the deficit to the five-year average to its widest yet this year at 349 Bcf, while lengthening the shortfall to 2021 corresponding-week storage levels to 409 Bcf.

Bullish NYMEX

In weekend trading, benchmark Henry Hub futures prices pulled back from the upper-$8/MMBtu range as domestic gas production showed signs of upward momentum. At mid-session May 31, the NYMEX July gas contract was down about 20-25 cents from its May 27 settlement, to trade near $8.50/MMBtu, data from CME Group showed.

From May 27-31, US production posted a notable gain, rising to an estimated 95 Bcf/d – up from its prior 30-day average at just 93.7 Bcf/d, S&P Global data showed.

"We've got some production coming back online, and the weather was not as hot as expected [last week], so I think overall we're pulling back a little bit," Phil Flynn, senior account executive at The Price Futures Group, said by telephone May 31.

Longer-term, though, the outlook for US gas prices remains bullish, according to most analysts.

In a research note published May 26, RBC Capital Markets analyst Scott Hanold referred to a "fundamentally constructive backdrop" for the US natural gas market this summer, fueled by strong LNG and pipeline exports and a bullish outlook for summer gas-fired cooling demand.

Outlook

During this summer's peak cooling months from June to August, most of the Lower 48 states face a 40% to 50% risk for above-average temperatures, according to a recent seasonal forecast from the US National Weather Service. Parts of Texas and the US Northeast, both critical cooling-demand regions, face even high risk for hot weather, adding to the bullish outlook for US gas-fired power.

Assuming US supply continues to trail demand, the industry could be on track to finish injection season with inventory levels somewhere in the range of 3.2-3.5 Tcf – potentially as much as 300-400 Bcf below average and the lowest in over five-years, according to data from S&P Global and other storage analysts.

For the week currently in progress, an anticipated weekly drop in US residential-commercial gas demand of roughly 2 Bcf/d, and a much smaller decline in power burn demand, should help to loosen the US supply-demand balance for the week, allowing more gas to flow into inventory.

For the week ending June 3, the US inventory build is expected to outpace the five-year average for only the fourth reporting week this season with an anticipated 100 Bcf injection currently forecast, S&P Global forecast data shows.