EIA expected to report 73 Bcf build into weekly natural gas storage: survey

The US Energy Information Administration is expected to report another above-average weekly injection to US natural gas storage for the week ended July 1, according to a survey of analysts by S&P Global Commodity Insights, which could fan bearish sentiment in the futures market.

The survey predicted a 73 Bcf net injection into storage, larger than both the 25 Bcf build observed in the 2021 corresponding-week injection and the five-year average injection of 60 Bcf. US storage levels would climb to 2.324 Tcf in this scenario, narrowing the deficit to the five-year average to 309 Bcf and to the corresponding week in 2021 to 248 Bcf. In percentage terms, a 74 Bcf weekly build would reduce the deficit to the five-year average to 11.7% from 12.5%, the thinnest deficit yet this injection season.

Eric Brooks, a senior natural gas markets analyst at S&P Global's Platts Analytics, noted that the recent higher-than-expected builds were "likely linked to there being more supply in the South Central than models have been showing."

The South Central numbers have added some uncertainty into forecasting, Brooks said.

"Now the question becomes whether to continue to err on the high side or to adhere more closely to what the supply and demand fundamentals are showing," Brooks added.

Responses to the survey were reported in a wider range this week, with expected injections ranging from 50 Bcf to 82 Bcf. The EIA plans to release its weekly storage report on July 7 at 10:30 am ET.

Looser supply-demand balance

The Lower 48 States' gas storage levels have steadily inched closer to the five-year average over the last six weeks, falling to potentially below 12% for the week ended July 1 from a 15.3% deficit in the week ended May 20. The more plump storage picture has eased concerns about a supply crunch, helping take some of the fear premium out of natural gas futures.

The NYMEX Henry Hub August contract slid 20.70 cents to $5.523/MMBtu on July 5, settlement data from CME Group showed. The prompt-month has consistently settled below $6/MMBtu since June 30, when a larger-than-expected weekly storage report and news that the outage at Freeport may be prolonged further gave the market a jolt of bearish sentiment.

An outage at Freeport LNG in Texas on June 8 took the liquefaction facility offline for the foreseeable future, adding an extra 2 Bcf/d of gas supply back into the market. The Henry Hub prompt contract has plummeted nearly 70% since, falling from $9.293/MMBtu on June 7, the day before the incident.

Robust dry gas production has also been a factor in the shifting supply-demand picture. Month-to-date US gas production has averaged 95.1 Bcf/d, up around 900 MMcf from the previous month and 4.1 Bcf higher than the same time in the prior year.

Outlook

Looking ahead, fundamentals for the week in progress indicated that a third consecutive week of above-average injections could be in the cards for the week ended July 8. US gas demand, excluding exports, has averaged 73.8 Bcf/d for July 2-5, down from 76.2 Bcf/d for the week ended July 5, data from S&P Global showed. While gas demand came in lower across sectors, the power sector has seen the largest week-on-week drop so far.

On the supply side, daily dry gas production has surpassed the 95 Bcf/d mark July 2-5.

Platts Analytics' Brooks estimated the week-in-progress build to be around 70 Bcf, which would be higher than both the year-ago injection of 49 Bcf and the five-year average injection of 55 Bcf.