The price of natural gas rallied last week, as the Henry Hub rose by 1.7%. Nonetheless, the Henry Hub is nearly flat on a monthly scale (up to date). Moreover, since the beginning of the month, United States Natural Gas (NYSEARCA:UNG) inched up by 0.5%. Will natural gas prices resume its downward trend in the near term?
Last week's rally in price of natural gas may have contributed to the modest gains of natural gas producers stocks such as Chesapeake Energy (NYSE:CHK) and Anadarko Petroleum (NYSE:APC) as they rose by 1.8% and 1.4%, respectively.
The storage keeps picking up at a fast pace
According the latest EIA weekly report, the injection to storage was 88 Bcf; the underground natural gas storage reached 2,555 Bcf - nearly 16% below the 5-year average. Last week's injection was 31 Bcf or 54% higher than last year's injection and 83% above the 5-year average. If this high rate injection continues, we could see the storage reaching 3,900 Bcf by the beginning of November. Specifically, in the past five weeks the injection rate was, on average, close to 82% higher than normal. Based on this pace, we get this chart.
As you can see, if the buildup continues at close to 80% higher than normal in the coming weeks, the storage could come back up to its normal levels by the end of the injection season - around the end of October and early November (The chart above presents the development in this year's storage (in blue) and the estimated buildup in storage over coming weeks (in red strips), assuming the buildup remains around 80% above the 5-year average. The red line is the 5 year average storage).
Based on the above, the price of natural gas could resume its downward trend in the coming weeks and settle close to the $3.5 mark.
In the mean time, as indicated in the chart below, the price of natural gas hasn't done much in the past few weeks.
The table below presents the past injections, the weekly changes in the price of natural gas.
During the previous week, the average U.S natural-gas total demand inched down again by 0.2% (week-over-week). Most of the fall is related to the lower demand in the power sector, which was partly offset by a modest gain in the residential, commercial and industrial sectors. But in the short term the expected higher temperatures in the eastern and central parts of U.S could bring back up the demand in the power sector, which could have some short term positive effects on the price of natural gas.
From the Supply side, the gross natural gas supply slightly dropped by 0.5%; this fall was mostly due to lower production. Conversely, according to Baker Hughes' latest weekly update, the natural gas rotary rig count rose by 9 rigs to reach 330 rigs - they are still down by 14% compared to last year.
Thus, during last week, the natural gas demand inched down and the supply also slid. In total, the EIA's supply/demand balance remained relatively unchanged with the supply remains above the demand.
The stagnation in the natural gas market could continue over the short term. My guess, as the buildup remains strong and the production isn't slowing down, the prices are likely to come down over the following weeks to the $3.5 mark. For mores see: Is Chesapeake's Outlook So Grim?
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