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Natural Gas Little Changed After Less-Than-Expected Supply Build

June 4, 2020 at 15:24 by Andrew Moran

Natural gas futures are little changed on Thursday after the US government reported a smaller-than-expected increase in domestic inventories. It has been a choppy trade for natural gas prices as investors try to weigh its short-term performance in the aftermath of the coronavirus pandemic. A key question that has plagued the industry this week is: Could natural gas slump below zero?

July natural gas futures edged up $0.006, or 0.33%, to $1.827 per million British thermal units (btu) at 15:08 GMT on Thursday on the New York Mercantile Exchange. Natural gas is on track for a tepid weekly gain of around 0.4%, but it is still down more than 16% year-to-date.

According to the US Energy Information Administration (EIA), domestic stockpiles of natural gas climbed by 102 billion cubic feet for the week ending May 29. This is smaller than the market forecast of 111 billion. In total, supplies stand at 2.714 trillion cubic feet, up 762 billion cubic feet from the same time a year ago. They are also 422 billion cubic feet above the five-year average.

Traders have been focusing on the weather and supply and demand fundamentals.

But while the global economy is beginning to reopen in the fallout of COVID-19, it could take a long time before demand returns to where it was the same time a year ago. Like crude oil, investors are optimistic that the demand recovery will be more paramount in the second half of the year, barring a second wave and fiscal and monetary support coming to an end. The main problem, however, is that international natural gas markets are still producing massive amounts of natural gas without much demand.

And this is where summer weather patterns come into play. The latest weather forecasts show that temperatures are starting to heat up across North America, feeding consumer demand. Last week, it was reported that air-conditioning usage had been steadily increasing alongside rising temperatures.

Moreover, the experts are monitoring the gradual formation of Tropical Storm Cristobal. It might be premature to determine its direction, but industry observers say it is important to pay attention to because of its potential effects on Gulf Coat production.

In April, crude oil prices cratered below zero for the first time on record. Could the same thing happen to natural gas? That is the talk on The Street as many analysts are weighing in on the possibility amid the global supply glut. Ultimately, the biggest threat to natural gas prices is European gas storage inventories that are at an all-time high of 73% capacity, above the five-year average of 45%.

Jonathan Stern, senior research fellow at the Oxford Institute of Energy Studies, told Reuters:

It may require a short period of negative prices to make suppliers understand the gravity of this situation — and this is before storages are completely full.

In other energy markets, July West Texas Intermediate (WTI) crude futures tumbled $0.64, or 1.72%, to $36.65 per barrel. August Brent crude futures shed $0.41, or 1.03%, to $39.38 a barrel. July gasoline futures picked up $0.0062, or 0.55%, to $1.1255 a gallon. July heating oil futures declined $0.0136, or 1.28%, to $1.051 per gallon.

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