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Natural Gas Crashes After Larger-Than-Expected Weekly Supply Build

June 20, 2019 at 16:09 by Andrew Moran

Natural gas futures are plummeting after the US government reported a bigger-than-expected increase in domestic inventories. Even US production falling sharply could not help prices recover, sitting at their worst levels in more than three years. Could natural gas slip below the important $2 threshold?

August natural gas futures tumbled $0.10, or 3.98%, to $2.182 per million British thermal units (btu) at 15:52 GMT on Thursday on the New York Mercantile Exchange. Natural gas is on track to record a steep weekly loss of around 6%, bringing its year-to-date decline to just under 24%.

According to the US Energy Information Administration (EIA), domestic stockpiles of natural gas climbed by 115 billion cubic feet for the week ending June 14. This is higher than the market forecast of 104 billion cubic feet. In total, inventories stand at 2.203 trillion cubic feet, which is up 209 billion cubic feet from the same time a year ago. They are also 199 billion below the five-year average.

New data found that US output had fallen to just under 87 billion cubic feet per day (bcf/d). Much of the declines are coming out of Pennsylvania, Tennessee, and the Rockies. It is likely that producers are curtailing production because of prices cratering to multi-year lows.

It does not help matters when investors are not convinced that a heat wave will cover much of the US throughout most of the summer. So far, temperatures have hovered between below normal and normal, impacting demand because households are cooling their homes less than in previous years. The latest mid-summer and early-autumn forecasts show that most of the US will experience below or near average temperatures, but the coastal areas will face above average temperatures.

Any declines in US output are being offset by Chinese efforts. Last month, China, which has invested heavily into its natural gas sector over the last two years to meet domestic demand, posted a 12.9% year-on-year production increase in May. This suggests that there will still be ample supplies in the global market, even if the US scales back production.

In other energy commodities, July West Texas Intermediate (WTI) crude oil futures advanced $3.17, or 5.87%, to $57.14 per barrel. August Brent crude futures surged $2.61, or 4.21%, to $64.41 a barrel. July gasoline futures tacked on $0.055, or 3.22%, to $1.79 per gallon. July heating oil futures jumped $0.06, or 3.34%, to $1.89 a gallon.

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