US working natural gas in underground storage increases by 15 Bcf: EIA

US natural gas working stocks rose by 15 Bcf during the week ended July 22, substantially below market expectations, but gas futures shrugged in response as NYMEX Henry Hub September steps up as the prompt-month contract.

Storage inventories increased to 2.416 Tcf for the week ended July 22, the US Energy Information Administration reported on July 28. The weekly build was smaller than an S&P Global Commodity Insights' survey of analysts calling for a 25 Bcf draw, but within the wide range of responses between 2 Bcf and 47 Bcf.

The net injection was also substantially less than the 38 Bcf build reported during the corresponding week in 2021 and the five-year average build of 32 Bcf, according to EIA data. As a result, stocks sit 293 Bcf, or 10.8%, below the year-ago level of 2.709 Tcf and 345 Bcf, or 12.5%, less than the five-year average of 2.416 Tcf. Volumetrically, the build puts storage levels at their widest distance to the five-year average so far in 2022, and the widest, percentage-wise, since June.

US gas futures falter

Despite the ostensibly bullish nature of a smaller build that widens the deficit, the NYMEX Henry Hub September contract dropped more than 40 cents in July 28 trading.

The prompt-month contract did not see much of a response in the first ten minutes after the report published, remaining in a range of $8.52-$8.55/MMBtu, near its prior-day settlement of $8.554/MMBtu. By mid-session, however, the contract had fallen toward the $8.20s/MMBtu, before ultimately settling 42 cents lower at $8.134/MMBtu.

The market may have already priced in expectations of a smaller build, analysts said.

"I think you see a perfect example of a market that was anticipating these numbers," Phil Flynn, senior market analyst with Price Futures Group, told S&P Global in a telephone interview. "We had the most historic run in prices that we've see in one month ever in the futures contract, percentage-wise. What can you do for an encore?"

NYMEX Henry Hub August hurtled nearly 60% higher from its July 1 settlement of $5.73/MMBtu to its recent peak of $8.993/MMBtu on July 26.

Part of the drop in US gas futures could also be attributed to seasonal changes, as traders now look ahead to September supply and demand fundamentals instead of August. Soaring gas-fired power demand from multiple heat waves has been a major driver of the recent streak of smaller weekly storage builds and provided support to higher prices. While National Weather Service outlooks show above-normal temperatures continuing through at least October, typically gas-fired power demand peaks in July and August.

"July is almost over, and while it is getting hotter, climate change hasn't impacted seasonal weather enough yet to assume we aren't going to see autumn this year," Flynn said.

Outlook

A forecast by S&P Global's supply and demand model calls for a larger 27 Bcf build for the week ending July 29, which would be larger than the five-year average build of 33 Bcf but below the 16 Bcf observed for that week in 2021.

As a result, the deficit to the five-year average would widen slightly to 12.6% while also reducing the distance to year-ago levels to 10.3%.

Platts Analytics data shows that gas-fired power demand has eased around 2 Bcf/d during the week in progress. Power sector demand for gas averaged 44.6 Bcf/d for July 23-28, down from 47.6 Bcf/d for the week ended July 22.