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Natural Gas Defies Expectations, Rallies 3% Amid Supply Build

August 27, 2020 at 17:25 by Andrew Moran

Natural gas futures are defying market forecasts on Thursday as the energy commodity rallied more than 3%. The US government reported a large increase in domestic inventories, and Hurricane Laura made landfall that devastated production facilities and power demand in Louisiana and Texas. Despite the bearish developments, natural gas prices surged toward the end of the trading week.

October natural gas futures rose $0.083, or 3.22%, to $2.657 per million British thermal units (btu) at 17:16 GMT on Thursday on the New York Mercantile Exchange. Natural gas is on track for another weekly spike of about 12%, bringing its year-to-date jump to 22%.

According to the US Energy Information Administration (EIA), domestic inventories of natural gas increased 45 billion cubic feet for the week ending August 21. This matches the median estimate. In total, supplies stand at 3.42 trillion cubic feet, up 580 billion cubic feet from the same time a year ago. They are also 438 billion cubic feet above the five-year average.

Hurricane Laura slammed into the US, creating destruction across two states. When it made landfall, the weather event also affected output in the Gulf of Mexico, as well as power demand. It is estimated that hundreds of thousands of people in Texas and Louisiana are without electricity. The loss of demand is expected to be greater over the next few days, warns EBW Analytics Group:

The loss of demand for natural gas is likely to be significantly greater than was anticipated just 24 hours ago, especially if Sabine Pass or Cameron are forced to stay offline for an extended period. This could create significant downward pressure on the front end of the curve, especially at a time when demand for gas was already expected to decline.

Meanwhile, in a separate EIA report, the US government noted that increased electricity demand, higher summer temperatures, and lower natural gas prices initiated natural gas-fired power generation to an all-time high of 36 gigawatts. Natural gas burn touched a daily record of 47.2 billion cubic feet.

In other industry news, India’s natural gas production fell 10% in July.

In other energy commodities, October West Texas Intermediate (WTI) crude oil futures fell $0.71, or 1.64%, to $42.68 per barrel. October Brent crude futures tumbled $0.78, or 1.69%, to $45.38 a barrel. October gasoline futures shed $0.0487, or 3.85%, to $1.215 per gallon. October heating oil futures slipped $0.0339, or 2.7%, to $1.2262 a gallon.

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