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Natural Gas Trims Losses on Smaller-Than-Expected Stocks

August 20, 2020 at 16:04 by Andrew Moran

Natural gas futures are trading lower on Thursday after the US government reported a smaller-than-expected increase in domestic inventories. Prices had plummeted on the news, but then they pared their declines on new weather forecasts that show rising temperatures in much of the US next month.

September natural gas futures tumbled $0.026, or 1.07%, to $2.40 per million British thermal units (btu) at 15:38 GMT on Thursday on the New York Mercantile Exchange. The energy commodity had dropped to as much as $2.37, but then it quickly recuperated. Natural gas prices are on track for a weekly boost of about 9%, bringing their year-to-date gains of 10%.

According to the US Energy Information Administration (EIA), domestic natural gas supplies in storage facilities climbed by 43 billion cubic feet in the week ending August 14. This is slightly lower than the market forecast of 48 billion. In total, US inventories stand at 3.375 trillion cubic feet, up 595 billion cubic feet from the same time a year ago. They are also 442 billion above the five-year average.

Last week, the EIA forecast in its Short-Term Energy Outlook (STEO) report that natural gas production and demand would slump in 2020 and 2021 from their all-time highs that were recorded in 2019. The STEO predicted that dry gas output would fall to 88.65 billion cubic feet per day this year and 84.02 billion cubic feet a day in 2021. Natural gas consumption would drop to 82.42 billion cubic feet per day this year and 78.71 billion cubic feet a day next year. In 2019, consumption was around 85 billion cubic feet per day.

In the short-term, traders are monitoring updated weather data. So far, the models are pointing to a bullish pattern for September, with temperatures rising in much of the US. This is a boon for natural gas prices because it would elevate demand and reduce storage levels.

Investors are also monitoring the Baker Hughes gas rig count that recently fell to an all-time low of 68.

Zacks Investment Research also had this piece of analysis regarding liquid natural gas (LNG) exports:

Finally, the steady improvement in shipments of LNG for export will facilitate the natural gas market. Volumes flowing to LNG export plants recently dropped to multi-month lows due to weak international demand. However, there has been a sustained increase in feed gas volumes over the past few weeks on the back of a better demand outlook. This is likely to translate into rising LNG shipments in August — the first in six months and a bullish demand factor for US natural gas prices.

September West Texas Intermediate (WTI) crude oil futures fell $0.38, or 0.88%, to $42.73 per barrel. October Brent crude futures dropped $0.58, or 1.28%, to $44.79 a barrel. September gasoline futures shed $0.0113, or 0.88%, to $1.2792 per gallon. September heating oil futures added $0.0057, or 0.46%, to $1.2567 per gallon.

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