Natural Gas Price Slumps as Inventory Swells

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The U.S. Energy Information Administration (EIA) reported Thursday morning that U.S. natural gas stocks increased by 91 billion cubic feet for the week ending July 3. Analysts polled by The Wall Street Journal expected a storage injection (increase) of about 85 billion cubic feet. The five-year average for the week is an increase of around 75 billion cubic feet.

Natural gas futures for August delivery traded up about 0.6% in advance of the EIA’s report, at around $2.70 per million BTUs, and slumped to about $2.66 following release of the report. Last Thursday, natural gas closed at $2.83 per million BTUs, and natural gas futures peaked at around $2.87 in the past five days. The 52-week low for natural gas futures is $2.57. One year ago, the price for a million BTUs was around $4.10.

Natural gas prices have slipped in the past week largely due to cooler weather lowering the demand for air conditioning. The large addition to storage compounds the weight on price. Temperatures next week are forecast to warm up over the West and then move into the central United States over the weekend and into next week. Hot weather over the central Plains, Texas, and the Southeast U.S. is likely to boost demand for cooling and, by extension, natural gas to generate the electricity to run all those coolers.

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Higher demand for natural gas this summer results from a confluence of factors. Drought conditions in California have reduced the amount of hydroelectric power generation. New gas-fired plants are coming on line to replace coal-fired plants, and natural gas remains very competitive with coal for power generation.

Earlier this week, the EIA said that working inventories of natural gas are on track to surpass the five-year average by more than 3% at the end of October, the traditional end of the summer injection season and the beginning of the winter withdrawal season. Natural gas in storage at the beginning of November is now forecast at 3.919 trillion cubic feet, about 1.25 trillion cubic feet above last week’s total working inventory. That is an average storage injection of about 74 billion cubic feet per week in each of the next 17 weeks.

Stockpiles are about 33% above their levels of a year ago and 1.7% above the five-year average.

The EIA reported that U.S. working stocks of natural gas totaled about 2.668 trillion cubic feet, around 45 billion cubic feet above the five-year average of 2.623 trillion cubic feet and 659 billion cubic feet above last year’s total for the same period. Working gas in storage totaled 2.009 trillion cubic feet for the same period a year ago.

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Here is how stocks of the largest U.S. natural gas producers reacting to the latest report:

Exxon Mobil Corp. (NYSE: XOM), the country’s largest producer of natural gas, traded down fractionally, at $81.96 in a 52-week range of $81.49 to $104.76.

Chesapeake Energy Corp. (NYSE: CHK) traded up about 3.5%, at $11.71 in a 52-week range of $9.94 to $29.25.

EOG Resources Inc. (NYSE: EOG) traded up about 1.1% to $85.45. The 52-week range is $81.07 to $118.81.

The United States Natural Gas ETF (NYSEMKT: UNG) traded down about 1%, at $12.77 in a 52-week range of $12.28 to $24.30.