Despite the recent fall in the price of natural gas during last week, the Henry Hub is down by only 1.7% for the month (up to date). United States Natural Gas (NYSEARCA:UNG) also fell by a similar rate during August. This recent fall came after natural gas recovered a week earlier. Further, natural gas producers including Chesapeake Energy (NYSE:CHK) and Anadarko Petroleum (NYSE:APC) also dropped by 3.9% and 1%, respectively, during last week. Will natural gas prices continue to zigzag with an unclear trend in the coming weeks?
Injections to storage remain robust
According the recent EIA weekly report, the recent injection to storage was 78 Bcf; the underground natural gas storage was 2,467 Bcf - close to 20% below the 5-year average. Last week's injection was 45 Bcf or 73% higher than the 5-year average and 13 Bcf higher than last year's injection. This high injection pace is likely, at the current pace, bring storage levels to normal by early November.
The table below shows the recent injections, the fluctuations in the price of natural gas in the past few months and injections in the past year and the 5-year average.
As you can see, the average weekly price of natural gas mostly dropped in the past few weeks. But there were situations in which the prices bounced back or remained nearly unchanged even when the injections to storage were higher than normal.
During last week, from the demand side, the average U.S natural-gas total demand slipped again by 0.2% (week-over-week). Most of the fall is related to the lower demand in the residential/commercial sector.
From the Supply side, the gross natural gas supply slightly increased by 0.6% during last week; this gain was mostly due to higher production. Further, according to Baker Hughes' latest weekly report, the natural gas rotary rig count rose by 5 rigs to reach 321 rigs - they are still down by 17% compared to last year.
Thus, during last week, the natural gas demand slipped while the supply slightly grew. Due to these modest fluctuations, the EIA's supply/demand balance remained relatively flat with the supply remaining higher than the demand.
In the past couple of years, during this time of the year, the prices of natural gas remained nearly unchanged compared to their relative rate.
But as indicated in the chart above, there were years when the price of natural gas zigzagged without a clear trend during July and August. Specifically, when prices were relatively high (around $4.5), they tended to fall during mid-August and September; they remain relatively flat throughout this time frame when prices were relatively low (close or below $3.5). This conclusion should be taken with a grain of salt as the sample size is small and as past performance is no indication of future performance. This only gives us a lead that we could see a similar pattern in natural gas in the coming weeks - since prices started off in July at a high level, they may resume their downward trend despite some short term recovers along the way.
This time of the year we could keep seeing some short term rallies in natural gas, but over the coming weeks, assuming the current high pace injections continue and the demand for natural gas keeps slowing coming down, prices are likely to resume their downward trend.
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