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Natural Gas Pauses Rally After Increase in Weekly Supply Build

July 9, 2020 at 16:24 by Andrew Moran

Natural gas futures are hitting the pause button on their huge rally over the last week after the US government reported an increase in domestic inventories. But the energy commodity’s decline might be capped on the latest weather forecasts that suggest a significantly hot pattern heading into the end of July. Are the bulls taking their profits now, or are the bears having their way in the broader market plunge?

August natural gas futures dipped $0.012, or 0.66%, to $1.812 per million British thermal units (btu) at 16:11 GMT on Thursday on the New York Mercantile Exchange. Natural gas prices are on track for an impressive weekly surge of about 5%, paring their year-to-date losses to below 17%.

According to the US Energy Information Administration (EIA), domestic stockpiles of natural gas increased by 56 billion cubic feet in the week ending July 3. This pretty much matches the median estimate of 55 billion cubic feet. In total, inventories stand at 3.133 trillion cubic feet, up 685 billion cubic feet from the same time a year ago. They are also 454 billion cubic feet above the five-year average.

So far this month, natural gas has been booming on rising energy consumption due to hot temperatures that have impacted most of the US. A plethora of weather models suggests that temperatures will remain high in both the US and Europe over the next two weeks, which would substantially boost natural gas demand. NatGasWeather reports:

The European model continues to run hotter than the GFS by more than 10 CDD, but both show widespread highs of 90s and 100s and humid conditions that will push the heat index into the dangerous 100–120 range. We continue to expect this hot US pattern will last through the end of July

Over the last month, air-conditioning demand has ballooned, and there is no reason why it would retreat for the rest of the month. Does this mean natural gas prices will test $2? The main problem is if oil and gas firms take advantage of the lower cost of drilling and relevant services and restart operations quicker than what the market would want. Gas-directed rigs have fallen 58% from last year, but the drop has slowed down, triggering concerns that production could be restarted when prices hit a certain level.

In other energy commodities, August West Texas Intermediate (WTI) crude oil futures tumbled $0.98, or 2.4%, to $39.92 a barrel. September Brent crude futures shed $0.73, or 1.69%, to $42.56 a barrel. August gasoline futures plunged $0.0308, or 2.39%, to $1.26 per gallon. August heating oil futures dipped $0.0073, or 0.58%, to $1.2272 a gallon.

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