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James Hyerczyk
Natural Gas

Natural gas futures are trading higher for a second session on Wednesday as traders are likely squaring positions in reaction to oversold technical conditions and ahead of Thursday’s U.S. Energy Information Administration’s (EIA) weekly storage report.

Natural Gas Intelligence (NGI) suggests traders are being influenced by the emergence of heat in the West and “weekend weather forecasts that are trending modestly warmer, creating potential for increased air conditioner use that could begin to offset weakening demand for U.S. exports.”

At 12:21 GMT, July natural gas is trading $1.810, up $0.033 or +1.86%.

Short-Term Weather Outlook

According to NatGasWeather for June 3 to June 9, “Texas, the South, and Southeast will be very warm with highs of 80s to low 90s, although cooling next week as Tropical Storm Cristobal approaches out of the Gulf of Mexico. Cooler air with showers will push into the Northwest, while still hot over the Southwest with 90s/100s. The Midwest and Northeast will be warm with 70s and 80s, including Chicago to NYC. Early next week favors a weather system over the Northwest/Rockies, heavy showers over the Gulf Coast/Texas, and very warm Great Lakes, Ohio Valley and East. Overall, moderate demand.”

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US Energy Information Administration Weekly Storage Report

Last week, the EIA said working gas in storage rose by a net 109 billion cubic feet (Bcf) in the week-ended May 22. Traders had forecast a build of 113 Bcf.

The 109 Bcf injection “does confirm balance tightening, but not enough to suggest that we are significantly lowering the risk of completely filling storage this fall,” Bespoke Weather Services said.

Total working gas in storage as of May 22 stood at 2,612 Bcf, 778 Bcf higher than last year and 423 Bcf above the five-year average, EIA said.

Broken down by region, the East injected 35 Bcf into storage, and the Midwest added 30 Bcf, according to EIA. South Central inventories rose by 24 Bcf, including a 20 Bcf build in nonsalts facilities and 3 Bcf build in salts. The Pacific added 11 Bcf into stocks, while the Mountain range injected 8 Bcf.

Daily Forecast

The supply and demand outlook remains bearish, offering traders little incentive to establish new long positions. However, the introduction of heat into the forecast is enough to attract some speculative buyers. Nonetheless, we suspect that most of today’s early gains are the result of short-covering due to the slight change in the weather forecast.

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