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James Hyerczyk
Natural Gas
Natural Gas

Natural gas futures settled sharply lower last week as investors continued to react to rising production and the possible break-up of the heat dome that had been covering most of the country since mid-June. Although the lingering hot temperatures were not enough to overtake the increased production, the easing of temperatures could drive prices even further lower over the near-term.

September Natural Gas futures settled the week at $2.724, down 0.102 or -3.61 percent.

Fundamentally, the Energy Information Administration’s (EIA) weekly natural gas storage report showed a miss to the low side of most estimates.

According to the EIA, producers injected 51 Bcf into Lower 48 gas stocks for the week-ended July 6, lower than the 59 Bcf injected last year and well-below the five-year average 77 Bcf build. Going into the report, major surveys showed traders were looking for a build of about 56 Bcf.

Reuters was looking for a build of 56 Bcf, with a range of 47 Bcf to 67 Bcf. Bloomberg called for a median 55 Bcf injection, with a range of 34 Bcf to 67 Bcf. The ICE EIA Financial Weekly Index futures contract had settled at 49 Bcf on Wednesday. Bespoke Weather Services was predicting a 54 Bcf build.

The EIA report also showed that total working gas in underground storage stood at 2,203 Bcf as of July 6, versus 2,928 Bcf a year ago and five-year average inventories of 2,722 Bcf. Week/week the year-on-year deficit widened from minus 717 Bcf to minus 725 Bcf, while the year-on-five-year deficit increased from minus 493 Bcf to minus 519 Bcf, EIA data show.

In other news, according to data from Baker Hughes, Inc., U.S. producers added two natural gas rigs during the week-ended July 13. The total number of domestic natural gas rigs finished the week at 189, roughly in line with 187 rigs running a year ago.

Forecast

This week, investors are going to continue to focus on rising production and the weather.

According to RBN Energy LLC analyst Sheetal Nasta, “What has taken the market by surprise, however, is the abruptness and sheer strength with which production has surged in just the past couple of weeks. It wasn’t until the second half of June that output shifted into high gear.”

According to NatGasWeather.com, “… cooling will sweep across the northern and east-central U.S. during the middle and end of this week with highs of 70s to lower 80s for lighter demand, while the rest of the country remains hot with highs of 90s and 100s including the Northwest. With stronger cooling into the northern U.S. late next week, demand will then ease from high to moderate.”

Other than a periodic short-covering rally due to profit-taking and position-squaring, we’re likely to see a test of the May bottom at $2.711 or lower.

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