Natural Gas Prices Slide after EIA Reports 51 Billion Cubic Feet Inventories Increase

The latest weekly natural gas storage report from the US Energy Information Administration (EIA) recorded a strong increase of 51bn cubic feet (Bcf) compared with expectations of a build of around 38 Bcf and the increase also of 11 Bcf seen the previous week.

Stocks were 238 Bcf higher than this time last year and 334 Bcf (10.9%) above the five-year average from 11.7% last week. Overall stocks at 3,401 Bcf are back above the 5-year maximum after briefly touching this level in late August.

The data overall represents a setback to hopes that inventories will continue to come under greater control and will tend to be a barrier to price gains.

Stocks in the Pacific region were 6.1% below the five-year average, while stocks in the Mountain region were still 24.7% above the five-year average.

Natural gas prices have drawn some support from weather-related conditions this week with fears over storm conditions in the Gulf of Mexico. The overall impact was limited, especially with the increased importance of shale-gas production to overall US production. Prices peaked just above $2.90 per mnBtu on Tuesday before declining sharply on expectations that the storm impact would be less than expected and consolidating around $2.85 ahead of the inventories data.

Overall temperature conditions have remained hot, which also provided net support to gas prices, although, on seasonal grounds, markets inevitably remained wary of a sharp dip in prices if temperatures cool at this time of year as summer conditions come to an end.

On the supply side, there has been no increase in gas drilling rigs over the summer with a small decline registered in the latest weekly Baker Hughes survey, which will limit the potential for higher production levels and help underpin prices.

Prices dipped significantly lower on the release to test the $2.80 per mnBtu level and then remained on the defensive.

Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.