Above-average 82 Bcf build in weekly US gas storage thins deficit, weakens futures

US natural gas working stocks increased by 82 Bcf during the week ended June 24, reducing the deficit to the five-year average to its lowest point yet this injection season and helping plunge natural gas futures to a three-month low.

Storage inventories rose to 2.251 Tcf in the week ended June 24, the US Energy Information Administration reported on June 30.

The weekly build outpaced even the highest estimate received in an S&P Global Commodity Insights' survey of analysts, which called for a 72 Bcf weekly injection. Survey responses ranged from a low of 65 Bcf to a high of 79 Bcf, a far narrower range than those observed in recent weeks.

The injection was more than the 73 Bcf build reported during both the corresponding week in 2021 and the five-year average, according to EIA data. As a result, stocks were 296 Bcf, or 11.6%, below the year-ago level of 2.547 Tcf and 322 Bcf, or 12.5% lower than the five-year average of 2.573 Tcf. The storage deficit to the five-year average last fell below 13% in February, making the most recent report the lowest level since injection season began.

Supply and demand

June has seen a tug-of-war emerge for the balance between supply and demand as market watchers attempt to reconcile growing production, weak LNG feedgas demand, and record-breaking heat waves that have spiked gas-fired power demand. The uncertainty has kept NYMEX Henry Hub futures in a holding pattern in recent trading, with the contract settling within a tight $6-$7/MMBtu range over the last eight sessions.

The above-average June 30 weekly storage report helped break the stalemate, with NYMEX Henry Hub August plummeting to levels not seen since late March. The prompt-month contract closed at $5.424/MMBtu on June 30, down $1.074 from its prior-day settlement, preliminary data from CME Group showed.

In the minutes before the weekly storage report launched, the August contract was trading around $6.53/MMBtu, up a handful of cents from its prior-day settlement on June 29. In the first five minutes after, the August contract slid nearly 10 cents to $6.44/MMBtu. By 12:30pm ET, the contract had fallen around 75 cents from its June 29 close to trade around $5.75/MMBtu, before dropping a further 33 cents in the final several hours of trading.

Outlook

Looking ahead, a forecast by S&P Global's supply and demand model calls for a much lesser build of 54 Bcf for the week ending July 1, which would be below the five-year average build of 60 Bcf but above the year-ago build of 25 Bcf. Should the forecast bear out, storage levels would reach 2.305 Tcf. While the deficit to the five-year average would increase slightly in absolute terms, rising 6 Bcf to 328 Bcf, it would stay the same, percentage-wise, remaining at 12.5%.

Part of the smaller predicted build could be explained by stronger gas-fired generation, week-on-week.

Continued heat wave conditions in large swaths of the country for the week in progress has boosted cooling demand. Gas-fired power demand has averaged 40.8 Bcf/d for the week in progress, up 300 MMcf/d from the week ended June 24.