The U.S. Energy Department's weekly inventory release showed a
slightly smaller-than-expected increase in natural gas supplies,
reflecting the commodity's brisk use for power generation.
Despite the relatively soft (and below estimate) supply build,
the latest injection - the fourteenth in 2012 - has added to
already bloated inventories. Gas stocks - currently some 30% above
the benchmark five-year average levels - are at their highest point
for this time of the year, reflecting low demand amid robust
onshore output. This has constantly pressured spot prices that
slipped to a 10-year low in April.
While natural gas inventories are no doubt still at elevated
levels, injections since late April have been significantly lower
than the average for this time, cutting the surplus relative to
last year and the five-year average.
About the Weekly Natural Gas Storage Report
The Weekly Natural Gas Storage Report - brought out by the
Energy Information Administration (EIA) every Thursday since 2002 -
includes updates on natural gas market prices, the latest storage
level estimates, recent weather data and other market activities or
The report provides an overview of the level of reserves and
their movements, thereby helping investors understand the
demand/supply dynamics of natural gas.
It is an indicator of current gas prices and volatility that
affect businesses of natural gas-weighted companies and related
support plays like
Anadarko Petroleum Corporation
Devon Energy Corporation
Helmerich & Payne
Analysis of the Data
Stockpiles held in underground storage in the lower 48 states
rose by 62 billion cubic feet (Bcf) for the week ended June 15,
2012, just short of the guidance range (of 63-67 Bcf gain) as per
the analysts surveyed by Platts, the energy information arm of
McGraw-Hill Companies Inc
The increase was also lower than both last year's build of 90
Bcf and the 5-year (2007-2011) average addition of 87 Bcf for the
reported week, thereby trimming the surplus relative to the
But in spite of the 'below-average' build during the past week,
the current storage level - at 3.006 trillion cubic feet (Tcf) - is
still up 680 Bcf (29.2%) from last year and 641 Bcf (27.1%) over
the five-year average.
Due to this huge natural gas surplus, inventories in underground
storage started to climb since March - weeks earlier than the usual
summer stock-building season of April through October. They have
persistently exceeded the five-year average since late September
last year and are likely to test the nation's underground storage
facilities by fall. In fact, the EIA foresees natural gas storage
at record highs of 4.02 Tcf by October end.
A supply glut has pressured natural gas prices during the past
year or so, as production from dense rock formations (shale) -
through novel techniques of horizontal drilling and hydraulic
fracturing - remain robust, thereby overwhelming demand.
Natural gas prices have dropped approximately 45% from 2011 peak
of $4.92 per million Btu (MMBtu) in June to the current level of
around $2.65 (referring to spot prices at the Henry Hub, the
benchmark supply point in Louisiana). Incidentally, prices hit a
10-year low of $1.82 during late April.
To make matters worse, near-record mild weather across most of
the country curbed natural gas demand for heating all winter,
leading to an early beginning for the stock-building season. The
grossly oversupplied market continues to pressure commodity prices
in the backdrop of sustained strong production.
However, in the recent past (since the week ended April 27 to be
precise), repeated smaller-than-average storage builds have rallied
back prices to above $2.50 per MMBtu. This can be attributed to
strong demand by the utilities, as beaten down prices of natural
gas have convinced them to switch to the commodity from the more
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