Analysts see US gas storage surplus narrowing through late May

Market analysts expect another below-average build to US natural gas storage for the third week of May as warmer weather and stronger gas-fired power demand limited available supply for injection.

According to the latest US gas storage survey from S&P Global Commodity Insights, the US Energy Information Administration will likely report a 78 Bcf injection to domestic inventory for the week to May 24.

Estimates for EIA's upcoming storage print were reported in a relatively narrow range from 70-90 Bcf. Over 75% of the weekly estimates landed within an even narrower range from 75-85 Bcf.

Assuming the latest survey prediction is accurate, the late May injection would undershoot the five-year average build of 104 Bcf and the year-ago stock addition 106 Bcf. US stocks would rise to 2.789 Tcf, narrowing the US gas storage surplus for a fifth consecutive week to 580 Bcf, or about 26%, above the five-year average data from EIA showed.

Thanks to a wave of production curtailments earlier this spring, domestic gas supply has tightened considerably over the past eight to 10 weeks. More recently, warming temperatures and rising gas-fired power demand have added to the tighter market conditions, helping to draw down the surplus from an annual high that reached nearly 680 Bcf, or more than 40%, above the five-year average as recently as mid-March.

NYMEX

Over the past four weeks, the NYMEX front-month gas futures contract has rallied amid tighter market conditions, briefly trading to over $2.90/MMBtu in late May – up from levels under $2 at the start of the month. On May 28, the expiring June contract was trading roughly flat from its prior settlement price at around $2.77, data from Intercontinental Exchange and S&P Global Commodity Insights showed.

"We're seeing a bit of a heatwave and that's giving us some support," said Phil Flynn, senior market analyst at The Price Futures Group, by telephone May 28.

Although temperatures have cooled again more recently, Flynn underscored the bullish outlook heading into June when another wave hotter weather is expected to drive gas-fired power demand back above 35 Bcf/d, according to a short-range forecast published by Commodity Insights.

Fundamentals

In the week to May 24, warmer temperatures in the US Northeast and an early-season heatwave across the South lifted US gas-fired power demand by nearly 4 Bcf/d compared with the seven days prior. During the week, power burn averaged 35.4 Bcf/d and hit a single day high at over 37 Bcf/d. The gains in power demand were partly offset by a drop in both residential-commercial and industrial burns. On the supply side, stronger production and higher pipeline imports from Canada also added some market length. On balance, the US gas market still tightened about 1.3 Bcf/d compared with the week prior.

According to S&P Global natural gas supply-demand model, EIA will likely estimate a slightly larger injection to US gas storage for the week already in progress.

Looser market conditions in the week to May 31 could allow for a build in the low-80 Bcf range, according to the model's latest projection. An inventory build within that range would still look relatively bullish compared with the five-year average injection of 103 Bcf and the year-ago stock addition of 105 Bcf, both reported in the corresponding week, data from EIA showed.