US gas storage stocks rise 80 Bcf to 1.812 Tcf; NYMEX futures breach $9/MMBtu

Scorching temperatures across Texas and the Midcontinent last week limited net injections to US gas storage, expanding the inventory deficit while further fuelling a rally in the NYMEX gas futures contract.

The US Energy Information Administration May 26 reported an 80 Bcf injection to US inventories for the week ended May 20, undershooting most storage analysts' expectations for a slightly larger build.

The injection was 7 Bcf less than an S&P Global Commodity Insights survey of analysts that called for an 87 Bcf addition to stocks and 17 Bcf below the prior-five year average build for the corresponding week.

As a result, US working gas inventories climbed to 1.812 Tcf. The shortfall to 2021 widened to 387 Bcf, leaving stocks nearly 18% below the year-ago level of 2.199 Tcf. The inventory deficit to the prior five-year average expanded to its widest yet this season, leaving stocks 327 Bcf, or about 15%, below the historical average of 2.139 Tcf, EIA data showed.

The NYMEX Henry Hub's soon-to-expire June contract surged about 30-40 cents immediately following the release of the EIA's storage report to trade around $9.30/MMBtu, CME Group data showed.

Weather

Unseasonably hot weather across Texas and the Midcontinent was a key driver behind the bullish EIA storage report, revealing the market impact that hot weather may have on US gas supply this summer.

Last week, temperatures across Texas, Oklahoma, and the Central Plains soared into the 90s Fahrenheit, with some locations hitting afternoon highs at over 100 F, or about 20-30 degrees above normal.

In Texas, gas-fired power burn hit record highs for mid-May at nearly 5.6 Bcf/d. In the Midcontinent, burns nearly topped 2 Bcf/d—also a record high for late spring, according to S&P Global Commodity Insights data.

For the South Central storage region, which includes Texas and most of the Midcontinent states, the EIA estimated just a 16 Bcf injection to gas storage last week, undershooting the region's five-year average injection for the corresponding week by 12 Bcf. The latest estimate now puts stocks in the key industrial and export demand region at 128 Bcf below the historical average, EIA data shows.

Outlook

The seemingly outsized pressure on South Central's strong inventories last week is a worrisome sign for injection demand in other storage regions this summer.

According to the US National Weather Service, nearly all of the Lower-48 states are at risk for above-average temperatures in June, July, and August, with more extreme risks likely for the Western and Rocky Mountain regions, along with the parts of the Northeast Atlantic Seaboard and all of New England.

Strong power burn demand, especially in Texas and the Northeast, could slow injections in both regions, potentially posing a risk to pre-winter inventories in the two key demand regions.

Short-term storage outlooks for the week ending May 27 are already predicting another below-average injection to inventory, with early estimates ranging from 63-70 Bcf, potentially widening the deficit by more than 35 Bcf. Longer-term, many storage analysts are now projecting US season-ending stocks to finish below 3.5 Tcf, in a potentially bullish scenario for Henry Hub gas prices in winter 2022-2023.