Strong production levels of 86.22 billion cubic feet per day (Bcf/d) were released by the U.S. Energy Information Administration (EIA) for report week ending June 28.
Numbers were robust on the demand side as well. Total U.S. gas demand from power generation sector reached a year-to-date high of 37.93 Bcf/d. LNG feed gas demand also posted a record high of 6.3 Bcf/d. Dry gas imports from Canada are back to prior week values after the pipeline maintenance caused a drop in the volumes. Mexico exports fell by 0.32 Bcf/d or 2.26 Bcf for the report week.
Our analysis leads us to expect an 89 Bcf storage build for the report week of June 28. Our expectation is 3 Bcf higher than the current consensus whisper expectation of 86 Bcf, and 20 Bcf higher than five-year average of 69 Bcf.
Storage – Negative
The EIA reported a weekly storage build of 98 Bcf, yet another strong build higher than five-year average values. We had predicted a 99 Bcf build for the week of Jun 21 and came close to the actual value. The injection increased levels to 2,301 Bcf, 236 Bcf higher than year ago levels and 171 Bcf lower than five-year average levels. Our storage build expectation this week of 89 Bcf is 20 Bcf higher than the five-year average value of 69 Bcf. All in, storage dynamics offer a negative driver for the gas prices this week.
Weather – Positive
According to National Oceanic and Atmospheric Administration forecasts, demand related to weather is set to increase with temperatures ranging in mid to low 90s across the Northwest and Northern Plains by second week of July. New forecasts indicate temperatures that are more seasonal over near term. As a result of lower than expected temperatures over the weekend, markets slashed natural gas prices by five cents on Monday. We are tracking weather data and will report on higher temperatures that are expected around mid-July. For short term, we expect weather to be a positive driver on gas price activity.
Supply – Negative
Average dry gas production increased by 0.24 Bcf/d, or 1.26 Bcf, over the report week. EIA’s short-term energy outlook predicts a 7.0 Bcf increase in dry gas production from 2018 numbers. The current production levels are at 86.2 Bcf/d while the EIA forecast numbers for 2019 are 90.6 Bcf/d. Therefore, there is still opportunity for growth in production before year-end. Accordingly, supply should offer a negative pressure for gas prices.
Demand – Positive
We see a positive effect from demand side drivers for the week ended June 28. Both power generation as well as LNG demand set year-to-date record levels over the report week. The summer power demand posted a 2 Bcf/d gain week-on-week or 14 Bcf. Demand from industrial sector has remained fairly flat at 20 Bcf/d.
Flows – Neutral
There were no reported disruptions or no new upset conditions. Flows will offer a neutral pressure to this week’s price activity.
Trader Sentiment – Negative
Market sentiment is bearish as participants are waiting for the heat to pick up to raise futures. We believe trader sentiment negative for the report week. The Commodity Futures Trading Commission’s June 28, 2019, commitment of traders report for NYMEX natural gas futures and options showed that reportable financial positions (Managed Money and Other) on June 25, 2019, were 165,702 net short while reportable commercial operator positions came in with a 135,107 net long position. Total open interest was reported for this week at 1,307,919 and was down 57,625 lots from last week’s reported 1,365,544 level.
India will look at reviewing the pricing of its long-term liquefied natural gas (LNG) deals at an "appropriate time" due to a fall in spot prices, oil minister Dharmendra Pradhan said on Aug. 25.
The Freeport LNG project in Texas started production at its first liquefaction train on Aug. 12 and aims to start commercial operation in the fall this year.
In the first seven months of 2019, natural gas feedstock deliveries to LNG export facilities have been the fastest growing among all U.S. natural gas consumption sectors, the EIA says.