Natural Gas Futures Advance as Supply Gain Misses Estimates

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Natural gas futures climbed for the first time in four days as U.S. stockpiles expanded by less than forecast last week.

Inventories rose 92 billion cubic feet in the week ended May 15 to 1.989 trillion, the Energy Information Administration said. Analyst estimates compiled by Bloomberg showed a gain of 96 billion, while a survey of Bloomberg users predicted an increase of 97 billion.

Gas has advanced 18 percent since closing at a 34-month low on April 27, driven by forecasts for late-spring heat that would boost demand from electricity generators. Deliveries of gas to power plants were up 14 percent from a year earlier as of Wednesday, according to LCI Energy Insight.

“This week’s number, and last week’s, have been an indication of strong power demand in mild conditions,” said Aaron Calder, an analyst at Gelber & Associates in Houston. “The outlook for rising cooling demand in June is also keeping prices supported.”

Natural gas for June delivery rose 3.4 cents, or 1.2 percent, to settle at $2.949 per million British thermal units on the New York Mercantile Exchange. Volume for all futures traded was 51 percent above the 100-day average at 2:34 p.m.

Average Gain

The stockpile increase was bigger than the five-year average gain for the week of 89 billion cubic feet, according to the EIA. A deficit to the five-year average narrowed to 1.7 percent from 2 percent the previous week. Supplies were 59 percent above year-earlier inventories, compared with 66 percent in last week’s report.

“The $3 level is still providing psychological resistance for the market,” Calder said. “As you get above the number, gas starts losing market share to coal in the power sector. The gas market is still oversupplied, and if we can’t move higher on an obviously bullish storage number, there are some serious roadblocks to a rally.”

Temperatures will be higher than average in the eastern third of the U.S. from May 26 through June 4, MDA Weather Services said.

The high in Philadelphia on May 27 may be 90 degrees Fahrenheit (32 Celsius), 13 more than usual, AccuWeather Inc. said on its website. New York’s temperature may reach 86 degrees, 12 above average.

Power plants account for 33 percent of gas demand in the U.S., EIA data show.

Gas consumption by electricity generators may climb 13 percent this year to 25.21 billion cubic feet a day, the EIA said May 12 in its monthly Short-Term Energy Outlook. Industrial demand may rise 4 percent to 21.81 billion.

Shale Gas

Production from the seven largest shale reservoirs in the U.S. will fall by 112 million cubic feet a day to 46.2 billion a day in June from a month earlier, the EIA said May 11.

Natural gas supply is still too high to overcome near-term bullish factors, Macquarie Capital analysts including Vikas Dwivedi in Houston said in a note to clients Thursday. Production growth may average more than 3.5 billion cubic feet a day above 2014, while demand is up 1 billion a day.

“We still see production as too big of a force to be reckoned with,” he said. “Over the medium-to-longer run we expect ample supply and spare capacity in the oil field services market to enable production to meet most conceivable demand scenarios.”

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