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Natural Gas Spikes Despite Bigger-Than-Expected US Supply Build

July 23, 2020 at 15:10 by Andrew Moran

Natural gas futures are rallying more than 3% on Thursday, despite the US government reporting a larger-than-expected increase in domestic inventories. The latest near-term weather forecasts could explain the energy commodity’s sudden spike, with many parts of the US anticipated to experience a heatwave. Are investors taking advantage of the bargain in natural gas prices?

September natural gas futures rose $0.058, or 3.45%, to $1.739 per million British thermal units (btu) at 15:00 GMT on Thursday on the New York Mercantile Exchange. Natural gas prices are on track for a tepid weekly gain of about 0.6%, but they are still down more than 20% year-to-date.

According to the US Energy Information Administration (EIA), domestic stockpiles of natural gas jumped by 37 billion cubic feet for the week ending July 17. The market had penciled in an increase of 33 billion cubic feet. In total, US supplies stand at 3.215 trillion cubic feet, up 656 billion cubic feet from the same time a year ago. They are also 436 billion cubic feet above the five-year average.

But while the data may have disappointed investors, recent weather forecasts over the next ten days might have renewed traders’ appetite for natural gas. Many parts of the US are expected to go through a heatwave, which would boost energy demand, particularly when it comes to air conditioning.

Meanwhile, domestic output levels are up from a 20-month low in July, averaging 88.1 billion cubic feet per day, reports Refinitiv. But production is still below the record monthly high of 95.4 billion cubic feet that was seen in November of last year. The economic data company forecast that US demand, including exports, will surge from 90.4 billion cubic feet per day to 92.9 billion cubic feet a day.

Pipeline gas flowing to US liquid natural gas (LNG) export plants averaged 3.2 billion cubic feet per day, which represents 33% utilization this month. Last month, it averaged 4.1 billion cubic feet per day. Last year, utilization was approximately 90%.

In other energy commodities, August West Texas Intermediate (WTI) crude oil futures tumbled $0.26, or 0.62%, to $41.64 per barrel. September Brent crude futures dropped $0.40, or 0.9%, to $43.89 a barrel. August heating oil futures dipped $0.0069, or 0.54%, to $1.274 per gallon. August gasoline futures slipped $0.00974, or 0.73%, to $1.2734 per gallon.

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