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Natural Gas Craters 6% After Bigger-Than-Expected Supply Jump

June 25, 2020 at 15:36 by Andrew Moran

Natural gas futures are cratering more than 6% on Thursday after the US government reported a bigger-than-expected increase in domestic stockpiles. Natural gas has come under pressure in recent sessions over output and supply concerns, and with demand still falling short of pre-pandemic levels, some analysts think prices can slide even further.

August natural gas futures plummeted $0.103, or 6.2%, to $1.558 per million British thermal units (btu) at 15:13 GMT on Thursday on the New York Mercantile Exchange. Natural gas is on track for a weekly loss of about 10%, adding to its year-to-date slump of 33%.

According to the US Energy Information Administration (EIA), domestic inventories of natural gas increased by 120 billion cubic feet for the week ending June 19. The market had penciled in a build of 107 billion cubic feet. In total, supplies stand at 3.012 trillion cubic feet, up 739 billion cubic feet from the same time a year ago. They are also 466 billion cubic feet above the five-year average.

This comes soon after a recent industry report forecast that the natural gas market will not rebound until 2022, adding that the so-called bridge fuel may only find support from rising crude oil prices. Overall, production is only seen becoming flat in 2021, with output making a full recovery in 2023.

Baker Hughes’ rig data is also in the spotlight after it showed last week that gas-directed rigs tumbled 58% from the same time a year ago. Analysts note that the rig count has held steady better than what the industry could have expected, but it could be because the cost of drilling and relevant services has slipped this year. And this is what some believe could help oil and gas firms rebound quicker than what some anticipate.

Over the next several trading sessions, liquid natural gas (LNG) demand will be put in focus. With many major markets experiencing a spike in COVID-19 cases, it is expected that energy demand will continue to slump. So far this year, LNG consumption has plunged in Japan, South Korea, and Latin America. If the coronavirus pandemic stays the same and discourages economies from reopening sooner and at a faster pace, multiple sectors, including energy, will take a substantial hit.

This could also result in storage levels – land and floating – are nearing full capacity. The early indicators say the higher storage volumes might be bearish news for winter natural gas.

In other energy commodities, August West Texas Intermediate (WTI) crude oil futures picked up $0.33, or 0.87%, to $38.34 per barrel. September Brent crude futures rose $0.32, or 0.79%, to $40.85 a barrel. August gasoline futures dipped $0.0076, or 0.63%, to $1.1916 a gallon. August heating oil futures were flat at $1.1628 per gallon.

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