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Natural Gas Rises Despite Increase in US Supplies

May 23, 2019 at 16:20 by Andrew Moran

Natural gas futures are rising on Thursday after the US government reported an increase in domestic stockpiles. The weekly gain was as the market had anticipated. Contracts are also finding direction on reports that Saudi Arabia is set to purchase a significant amount of natural gas from the US, which could decrease domestic stocks and signify a dramatic shift from crude oil.

July natural gas futures tacked on $0.02, or 0.77%, to $2.56 per million British thermal units (btu) at 15:48 GMT on Thursday on the New York Mercantile Exchange. Natural gas prices are on track for a weekly loss of about 3%, but they have had a commendable performance in May, advancing 1%. Year-to-date, natural gas tumbled 11%.

According to the US Energy Information Administration (EIA), domestic natural gas inventories surged by 100 billion cubic feet for the week ending May 17. The market had forecast a rise of 103 billion cubic feet. In total, US supplies stand at 1.753 trillion cubic feet, up 137 billion cubic feet from the same time a year ago. They are also 274 billion below the five-year average.

In industry news, Saudi Arabia is bullish on American natural gas. The nation’s biggest energy firm, Saudi Aramco, announced that it was acquiring five million tons of liquefied natural gas (LNG) per year from a Texas export project that is under development in Port Arthur. Also, Aramco will invest in the development in exchange for a 25% stake.

If the preliminary deal goes through, then it could be one of the largest LNG agreements ever completed. This is an interesting development not just for the natural gas industry, but also by the fact that the tables have turned. For decades, the US purchased a large portion of its energy needs from Saudi Arabia, but now Saudi Arabia is buying energy from the US.

There is a reason why the US has been described as Saudi America.

That said, Saudi Arabia is unlikely to use LNG to fuel its power needs. Instead, as part of efforts to establish a footing in the natural gas industry, Saudi Arabia is likely trying to sell to markets in Europe and South America.

Amin Nasser, Aramco’s CEO, said in a statement:

We see significant opportunities in this market and we will continue to pursue strategic partnerships which enable us to meet rising global demand for LNG.

In other energy markets, July West Texas Intermediate (WTI) crude oil futures cratered $3.07, or 5.00%, to $58.35 per barrel. July Brent crude futures plunged $3.01, or 4.24%, to $67.99 a barrel. July gasoline futures slipped $0.07, or 3.8%, to $1.91 per gallon. July heating oil futures fell $0.08, or 3.9%, to $1.97 a gallon.

If you have any questions and comments on commodities today, use the form below to reply.

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