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US working natural gas volumes in underground storage rise by 89 Bcf: EIA

Total additions to US natural gas in storage last week surprised to the upside, prompting a selloff in the Henry Hub prompt futures market with a much smaller declines seen for the winter 2020-21 contracts.

Storage inventories increased by 89 Bcf to 3.614 Tcf for the week ended Sept. 11, the US Energy Information Administration reported the morning of Sept. 17.

The injection was significantly higher compared with S&P Global Platts’ survey of analysts calling for a 77 Bcf build. Responses to the survey ranged from an injection of 68 Bcf to 80 Bcf. The injection was also more than the 82 Bcf build reported during the same week last year and 12 Bcf above the five-year average gain of 77 Bcf, according to EIA data.

Storage volumes now stand 535 Bcf, or about 17%, above the year-ago level of 3.079 Tcf and 421 Bcf, or 13%, higher than the five-year average of 3.193 Tcf.

Following release of the EIA’s storage report, the Henry Hub prompt-month futures contract dropped by over 20 cents to trade in the low $2/MMBtu area, data from the CME Group showed.

The downward pressure extended only partially to the November futures contract, which dropped about 14 cents to around $2.50/MMBtu. The December, January and February contracts came under significantly less pressure during morning trading, falling only about 5 cents.

Tightening supply

While total US storage volumes continue to hover well above five-year average levels, the additional underground supply hasn’t countered the market’s bullish sentiment for winter 2020-21. Since the start of August, the winter gas contracts have gained about 20 cents and continue to trade in the low-$3/MMBtu area.

The upward pressure comes as dramatic cuts in drilling budgets and rig counts this year have left US gas production sputtering around 87 Bcf/d – about 8 Bcf/d, or more than 8%, below its record-high monthly average recorded in November 2019. At current activity levels, US output would remain around its current 87 Bcf/d level through at least mid-2021, recent forecasts from S&P Global Platts Analytics show.

On Sept. 17, the US rig count was estimated at 293 amid a modest but bumpy rebound from its 15-year low level at just 279 rigs in July. In January 2020, the US rig count had totaled over 840 rigs – already significantly below a prior, multiyear high at nearly 1,200 rigs in early 2019, data from Enverus DrillingInfo showed.

Heading into mid- to late-September, upcoming storage reports from the EIA could add more bullish sentiment to a market already concerned over recent upstream supply cuts.

For the week currently in progress, the EIA is likely to announce an injection of just 66 Bcf, according to a recent forecast from Platts Analytics. Assuming the forecast holds, the injection to US stocks for the week ending Sept. 18 would fall short of the five-year average by 14 Bcf.
Source: Platts

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