Natural gas prices buoyed by another strong storage report

(Lucas Schifres/Bloomberg)
(Lucas Schifres/Bloomberg)

HOUSTON — Natural gas futures drifted higher Thursday morning, after weekly data revealed a smaller-than-expected build in inventories last week.

The benchmark next month contract for the fuel gained 3.2 cents, up 1.2 percent to $2.791 per million British thermal unit in early trading Thursday.

The gain came after U.S. Energy Information Administration data showed that commercial stores of natural gas rose by 75 billion cubic feet for the week ending June 19. The build came in under what most analysts thought it would be — an average of 21 estimates compiled by Bloomberg had expected a storage build of 78 billion cubic feet.

A similar situation played out in the previous reporting period (for the week ending June 12), when analysts posted an average estimate of a 92 billion cubic foot increase and only saw 89 billion cubic feet of gas enter storage.

Combined, the reports have added to a sense that the U.S. is either producing less or consuming more natural gas than traders previously thought. Or, others have suggested, short-term effects have pushed injections into storage lower.

“The 75 (billion cubic feet) in net injections was below the median expectation and tends to reinforce the idea of a modest tightening in the background supply/demand balance,” said Tim Evans of Citi Futures in a note to clients, using tightening to reference to a narrowing gap between production and natural gas demand. “Anecdotally, maintenance work may be limiting supply while power sector demand is on the rise with the closure of some coal-fired power plants.”

However, any shift suggested by recent reports is like rearranging the deck chairs on the Titanic. Prices are still down significantly from the $3.50 to $4.00 per million British thermal unit levels seen last year and few expect a rally in natural gas prices until new sources of demand such as export facilities come online.