Analysis: In-Line Rise in Storage
Stockpiles held in underground storage in the lower 48 states rose by 85 billion cubic feet (Bcf) for the week ended May 3, matching the guidance as per the analysts surveyed by S&P Global Platts. However, the increase was higher than the five-year (2014-2018) average net injection of 72 Bcf, while the reported week saw a similar increase last year.
Following past week’s supply addition, at 1.547 trillion cubic feet (Tcf), natural gas inventories are 303 Bcf (16.4%) under the five-year average but 128 Bcf (9%) above the year-ago figure.
Fundamentally speaking, total supply of natural gas averaged around 94.4 Bcf per day, essentially unchanged on a weekly basis as dry production remained flat. Meanwhile, daily consumption fell 1.8% to 76 Bcf primarily due to weaker residential/commercial demand with temperatures falling back to normal territory.
Natural Gas Futures Struggle to Reach $3
While natural gas futures have edged up a bit from the 3-year lows of below $2.5 per MMBtu in April and currently trade around $2.6 per MMBtu, it’s still 47% below the four-year high of $4.929 per MMBtu reached in mid-November. The early onset of winter, together with the lowest level of stocks in 15 years, demand from power plants and growing LNG shipments lifted the commodity to almost $5 per MMBtu. But the euphoria didn’t last long as a mild weather led to smaller withdrawals that markedly reduced the storage deficit and sent prices lower.
What is the Future of Natural Gas Prices?
The fundamentals of natural gas consumption continue to be favorable. The demand for cleaner fuels and the commodity’s relatively lower price has catapulted natural gas’ share of domestic electricity generation to 35%, from 25% in 2011. Moreover, new pipelines to Mexico, together with large-scale liquefied gas export facilities have meant that exports out of the U.S. are set for a quantum leap. Finally, higher consumption from industrial projects will likely ensure strong natural gas demand.
However, record high production in the United States and expectations for explosive growth through 2020 means that supply will keep pace with demand. Therefore, prices are likely to trade sideways but for weather-driven movements. Also, with the traditional withdrawal season (when supplies fall on heating demand due to cold weather) having ended in March, consumption is likely to decline in the near term.
The United States Natural Gas Fund L.P. (UNG) was trading at $23.01 per share on Tuesday afternoon, up $0.30 (+1.32%). Year-to-date, UNG has declined -1.33%, versus a 7.20% rise in the benchmark S&P 500 index during the same period.
UNG currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #51 of 110 ETFs in the Commodity ETFs category.
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