Natural gas trading outlook: prices drop after US inventories report

Natural gas futures reversed earlier gains during midday trade in Europe today, as the US posted another bearish reading on natgas inventories. The weekly build was reported well above expectations, and continued the trend of the past few months of significantly larger-than-average builds.

On the New York Mercantile Exchange, natural gas futures for settlement in September were down 0.52% by 14:40 GMT to trade at $3.803 per million British thermal units. Prices ranged between a one-week high of $3.995 and day’s low of $3.796, respectively. The energy source lost 1.4% on Wednesday.

The US Energy Information Administration (EIA) posted its weekly readings on natgas storage levels today, to reveal 88 billion cubic feet (Bcf) of natural gas were added to inventories in the week through August 15. The build was larger than the expect 83 Bcf, and is almost double the 5-year average gain for the week, while also marking the sixteenth straight week of higher-than-average injections.

Inventories were brought to 2 555 trillion cubic feet, or just 17.3% below the 5-year average, and are on track to completely replenish ahead of heating season, which typically starts in November.

Next week’s inventory report is also projected to come in well bearish, albeit leaner than recent ones.

“Weather patterns suggest 100+ Bcf builds will be coming sooner than later, so whatever summer heat is coming to the US, it better hurry up and get on with it because time is rapidly running out,” analysts at NatGasWeather.com said in a note to clients today. “We expect the nat gas markets to make one more leg lower this summer before finding a seasonal bottom.”

US weather outlook

According to NatGasWeather.com’s forecast for the August 21st – August 27th time span, the southern US will remain quite hot with highs well into the 90s extending as far north as the southern Plains and Tennessee Valley. The western parts of the country will have several weather systems track through with showers, thunderstorms, and cooler-than-usual temperatures. There will be several days of warm temperatures early next week over the Great Lakes where highs could establish at 90 degrees Fahrenheit for several days before dropping back to near or below normal.

The northern US will also see milder weather systems carrying heavy showers and thunderstorms. A much cooler system will push into the northern Rockies and Plains, bringing highs down to the 60s and 70s. Overall, nationwide cooling demand during the next seven days will be moderate compared to normal.

According to NatGasWeather.com’s August 28th – September 3rd weather outlook, an expected Canadian weather system with showers and below-usual readings will enter the US and sweep across its northern areas. It will push moderately deep into the central US, lowering temperatures to comfortable levels. The first wave of cooler Canadian air has already tracked across the northern Rockies and Plains, and will stall there for several days.