Natural Gas Report: Inventories Remain Low Despite 92Bcf Injection


Natural gas prices, which were already lower ahead of the release, moved even lower after the report, but then proceeded to claw their way back to where they were earlier.

Weather last week was seasonal—which is to say, mild—thus, a large injection was to be expected.  According to the Edison Electric Institute, 70,825GWH of electricity was generated last week, or 2.1 percent above last year.
Turning to Canadian storage, we see that like in the U.S., inventories are running well below the year-ago level. After a 17bcf injection last week, Canadian storage totals 251bcf, or 130bcf below last year and 59bcf below the five-year average.

As usual, market participants will be closely watching tomorrow’s rig count figures from Baker Hughes. Last week, we saw the number of rigs drilling for natural gas decline by 16 to 874, to the lowest since February of last year. The count is now 118 rigs off last year’s peak set in August, but production has continued to stay elevated amid increasing productivity.

The outlook for natural gas remains relatively balanced. A colder-than-normal end to this past winter helped create a year-over-year deficit in inventories. Total North American inventories (U.S. and Canada) are a significant 376bcf below a year ago. Moreover, the rig count is slowly but steadily declining as operators continue to shift capital to more compelling liquids-rich (oil and NGLs) prospects.
Yet after initially rallying as high as $4.70/mmbtu, natural gas prices have come back toward the lower end of their recent range, near $4/mmbtu.

This is largely because production continues to grow despite the muted price environment, reinforcing the view that supplies remain ample. With prices near the lower end of their range, however, there may be upside in the event of a warmer-than-normal summer that increases the year-over-year inventory deficit even further.

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