Bullish US gas storage report from EIA ends streak of triple-digit injections

The US Energy Information Administration on Oct. 27 reported a surprisingly bullish 52 Bcf injection to natural gas inventories during the prior week as colder temperatures across the Central and Eastern US fueled a sharp rise in heating demand, tightening the domestic supply-demand balance.

Total injection demand during the week ended Oct. 14 undershot the consensus expectation for a 65 Bcf addition to stocks, projected by S&P Global Commodity Insights' survey of analysts. The weekly build was also smaller than the five-year average injection of 66 Bcf and just a fraction of the year-ago stock addition that totaled 88 Bcf in the corresponding week, EIA data showed.

As a result, US inventory levels climbed to 3.394 Tcf during the week, widening the deficit to 197 Bcf or about 5.5% below the prior five-year average. The undersized injection also widened the chasm to the year-ago inventory level of 142 Bcf, or about a 4% deficit.

Last week's injection was the first since mid-September that has come in below the five-year average. Over a consecutive five-week stretch, triple-digit injections reported by the EIA rapidly reshaped the outlook for the US gas market this winter, slashing prices from historic highs at over $9/MMBtu.

Immediately following the EIA's storage announcement Oct. 27, the NYMEX Henry Hub December contract jumped 10 cents to trade around $6.10/MMBtu following a volatile morning session that had briefly pushed prices below $6. By market close, prices dipped lower again, falling to about $5.19/MMBtu, data from CME Group showed.

Fundamentals

Following a month of relatively mild weather, temperatures across the central and eastern US turned sharply colder from mid- to late October pushing heating demand to highs unseen since last April.

During the week ended Oct. 21, US residential-commercial gas demand averaged nearly 22.7 Bcf/d, briefly surging to a single-day high at over 28 Bcf/d. The roughly 5.1 Bcf/d gain in res-comm demand during the week was only partially offset by a 1 Bcf/d drop in US power burn demand that came as temperatures in the Northeast, Midwest, Midcontinent and the Rockies plunged into the 50s Fahrenheit, data from S&P Global showed.

Weekly gains in industrial burns and LNG feedgas deliveries added to the overall rise in US gas demand during the week ended Oct. 21. Despite the gains in US consumption, domestic production was largely unchanged, holding at about 96.8 Bcf/d during the week. Combined, the weekly changes in US supply and demand significantly tightened the domestic market, leaving less supply available for injection.

During the week ending Oct. 28, the US supply-demand has balance eased thanks to milder weather, lower heating demand and a modest uptick in domestic gas production. As the US gas market loosens, S&P Global's supply-demand model is now projecting a 90 Bcf build for the current week – a relatively bearish prediction that would register twice the size of the five-year average injection of 45 Bcf and 24 Bcf more than the year-ago injection of 66 Bcf in the corresponding week.