Weekly Natural Gas Storage Report - 'Down Goes The Surplus'

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Injection of +62 Bcf.

Injection came in below 5-year and last year figures.

Surplus reduced.

EIA reported injection figures of +62 Bcf bringing total storage to 3.103 Tcf. This compares to the +77 Bcf build last year and the +88 Bcf for the five-year average.

Market participants were expecting injections of between 55 Bcf - 63 Bcf, so this week's build came in at the high end of the range.

Part of the miss comes from the increased Canadian gas imports which we reported. AECO basis differential remains wide despite recent price strengthening. We expect gas imports from Canada to remain above 6 Bcf/d as long as the basis differential remains wide.

At 3.103 Tcf, gas storage remains 618 Bcf higher than last year and 678 Bcf higher than the 5-year average. Prior to this release, total injection this year is 561 Bcf versus the 5-year average of 731 Bcf and 936 Bcf from last year.

Demand is finally catching up with supply and we expect this to continue. Associated gas production is finally rolling over, and given that it comprises nearly 20+% of US gas production, the decline has been meaningful. We think US gas production is on pace to decline below 70 Bcf/d by mid-July, and we are forecasting a decline to 68 Bcf/d by year-end.

Overall, this was another relatively bullish storage report. Higher Canadian gas imports likely caused the miss. The next several weeks will see some really low injection figures, and the market has somewhat priced it in already. Estimates for end of injection storage figures are coming down, but it remains around 4.1 Tcf. We suspect these estimates will have to go below 4 Tcf for natural gas to rally above $3/MMBtu.

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