Smallest U.S. Gas Supply Gain in a Decade Spurs Price Rally

  • Stocks rose 17 billion cubic feet versus call for 26 billion
  • Market focus now shifts to prospect of a winter deficit

U.S. natural gas futures rallied the most in two months after a government report showed the smallest inventory gain in a decade.

Gas stockpiles rose by 17 billion cubic feet last week to 3.294 trillion, the smallest storage injection for the same period since a withdrawal was reported in 2006, government data show. Analysts predicted a gain of 26 billion. Prices jumped 7.5 percent, the biggest rise since May 27, after the bullish report and a midday weather update that showed higher temperatures in the eastern U.S.

Inventory gains have been trailing historic norms most of the stockpiling season, cutting into a surplus as power generators burn a record amount of the fuel and output declines. In a matter of weeks, the market’s focus has shifted to the possibility of a supply deficit from concern that an inventory surplus would persist into the fall.

“This was way below the five-year average,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “It wasn’t even close. After this number you can paint that picture where you can go into a deficit situation by November.”

Gas futures for September delivery climbed 21.3 cents, or 8 percent, to $2.873 per million British thermal units on the New York Mercantile Exchange, the highest settlement since July 1.

Gas Deficit

Some traders are speculating that next week’s report may show an even smaller inventory gain as hot weather continues, said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

Gas stockpiles were 18.9 percent above the five-year average as of July 22, narrowing from 54.4 percent on April 1, EIA data show.

Parts of the Northeast and the mid-Atlantic are experiencing a heat wave this week. The high temperature in Washington Thursday will be 93 degrees Fahrenheit (34 Celsius), topping 90 degrees for the eighth straight day, AccuWeather Inc. said on its website.

The heat will persist into next month. Gas futures extended gains after a midday update to a government weather model showed above-normal temperatures in the Northeast and Great Lakes region Aug. 7 through Aug. 11.  

Power generators are burning about 36.2 billion cubic feet a day of gas so far this month, up 9.6 percent from a year earlier, PointLogic Energy data show.

“Not that long ago there was talk about there being so much gas around you could flare it, burn it and we’d all have enough to go on forever,” said Mizuho’s Yawger. “You are getting some pretty good demand from the utility sector.”

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