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Natural Gas Extends Gains Despite Larger-Than-Expected Supply Build

August 6, 2020 at 14:58 by Andrew Moran

Natural gas futures are extending this week’s massive gains on Thursday, despite the US government reporting a larger-than-expected build in domestic inventories. With most of the US bracing for a heatwave, natural gas prices have skyrocketed over the last week, making investors bullish on the bridge fuel.

September natural gas futures advanced $0.045, or 2.05%, to $2.238 per million British thermal units (btu) at 14:42 GMT on Thursday on the New York Mercantile Exchange. Natural gas is on track for a weekly spike of more than 22%, bringing its year-to-date rally to nearly 3%.

According to the US Energy Information Administration (EIA), domestic natural gas stockpiles increased by 33 billion cubic feet in the week ending July 31. This is bigger than the market forecast of 30 billion cubic feet. In total, US inventories stand at 3.247 trillion cubic feet, up 601 billion cubic feet from the same time a year ago. They are also 429 billion cubic feet above the five-year average.

Natural gas is on track for its best weekly performance in history, driven primarily by the weather. On Monday, weather forecasts suggested that most of the US would experience higher-than-normal temperatures by the middle of August, with the southwestern region to endure “dangerous” temperatures.

This is bullish for natural gas demand since higher temperatures increase air-conditioning consumption.

The sector was more optimistic after the Bank of America revised its estimates upward, citing renewed demand, increasing liquefied natural gas (LNG) shipments, and rebounding economies in the aftermath of the COVID-19 public health crisis. The BofA analysts wrote in their report:

We expect injections to slow in the coming months to avoid end of season congestion — barring a very mild rest of summer — and thus do not see much further downside to front-month prices from here. LNG demand will ramp up starting September and rise strongly into the winter as Europe and Asia free up storage capacity.

In other industry news, Argentina’s natural gas output slumped in June, while Ukraine is set to increase its production levels to take advantage of higher prices. With the total rig count decline slowing down, it is believed that more oil and gas companies are bringing operations back online, which could threaten the global energy markets.

In other energy commodities, September West Texas Intermediate (WTI) crude oil futures dipped $0.08, or 0.19%, to $42.11 per barrel. October Brent crude futures rose $0.13, or 0.29%, to $45.30 a barrel. September gasoline futures picked up $0.0111, or 0.91%, to $1.2339 a gallon. September heating oil futures slipped $0.0109, or 0.86%, to $1.2521 per gallon.

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