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Natural Gas Jumps After Slightly Larger-Than-Expected Supply Build

June 18, 2020 at 17:12 by Andrew Moran

Natural gas futures rose nearly 1% on Thursday, despite the US government reporting a slightly larger-than-expected increase in domestic supplies. The energy commodity has been slumping in recent sessions on concerns that global stockpiles would challenge capacity, providing additional fears that prices could mirror crude oil in April and slip below zero.

July natural gas futures picked up $0.015, or 0.92%, to $1.653 per million British thermal units (btu) at 16:53 GMT on Thursday on the New York Mercantile Exchange. Natural gas prices are poised for a steep weekly decline of 9%, adding to their year-to-date losses of just under 25%.

According to the US Energy Information Administration (EIA), domestic inventories of natural gas jumped by 85 billion cubic feet for the week ending June 12. This is slightly more than the 79 billion that analysts had anticipated. In total, supplies stand at 2.892 trillion cubic feet, up 722 billion cubic feet from the same time a year ago. They are also 419 billion cubic feet above the five-year average.

With summer around the corner and temperatures heating up across North America, natural gas prices tend to rise due to soaring demand. Although air-conditioning consumption has risen in June, the demand is not enough to offset the vast amount of supplies. Foreign exports have also taken a hit over sluggish economic growth and concerns over a second wave of the coronavirus.

All eyes are on the US and China, two of the largest markets for natural gas. Dozens of states of the US have reported a huge spike in confirmed COVID-19 cases, while many places across China are back under lockdown. The slowdown in the global economy could impact international supply chains since many cargoes have been canceled, adding to a supply glut worldwide.

Overall, because natural gas stocks in the US, Europe, and Asia have been steadily rising, there are fears that the industry could be crippled by overcapacity. This has triggered forecasts by several experts that prices could experience the same thing that crude oil did in April and dip into negative territory, even only temporarily. For now, investors will be looking at October 2020 futures contracts when the winter withdrawal season commences.

Could winter be coming for the natural gas sector?

In other energy commodities, July West Texas Intermediate (WTI) crude oil futures tacked on $0.83, or 2.19%, to $38.79 per barrel. August Brent crude futures added $0.71, or 1.74%, to $41.42 a barrel. July gasoline futures surged $0.0255, or 2.1%, to $1.2408 per gallon. July heating oil futures edged up $0.0113, or 0.93%, to $1.1933 a gallon.

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