Natural gas has hit successive 10-year low weighed down by slack weather related demand in US and higher stocks in US storage. US winter related heating demand was subdued this season due to warmer than average weather. Winter has now come to an end and we have entered the shoulder month of April. Cooling demand usually increases in summer month of May .
The latest US weather forecasts are calling for moderately warmer temperatures for the next six to 10 days across the US Midwest and Southeast. However slightly cooler condition are seen in the Northeast. Warm weather can push up natural gas prices by increasing consumers' use of air conditioners. However, the current weather is unlikely to be hot enough to significantly spur demand this early in the spring.
The slack weather related demand has added to supply overhang. US working gas stocks now stand at 2487 Bcf which is 55.5% higher stocks tips same period last year and 58.7% higher than 5-year average stocks for this time of the year. With the start of the injections season, market players are concerned that that some regions unable to cope with rocketing production are set to fill up by July, leaving a glut of stranded gas that could send already depressed prices into an unprecedented tailspin much earlier than expected. As per EIA estimates, US natural gas stocks are likely to rise to 3.923 Tcf during the spring and summer months.
The sharp drop in natural gas price in last few months has raised concerns amid producers resulting in some production cuts however the cutback have not been severe enough to result in a sharp rise in price. The sharp drop in price has affected natural gas rig activity in US. The number of rigs drilling for gas in the US fell by 23 last week to 624 rigs. This is the lowest rig count since April 2002. Market players believe that rig activity will have to drop below 600 level to have a significant impact on production. Higher drilling for crude oil will add to production of associated gas.
Overall, natural gas trades under pressure weighed down by higher stocks in US storage and slack weather related demand in US. While we may see some bouts of short covering a sharp rise is unlikely unless we see extensive production cuts in US. Focus will now shift to US weekly inventory report. EIA is expected to note a 24 Bcf increase in US working gas stocks. Stocks gained 42 Bcf during the same week last year. The five-year average increase for that week is 26 Bcf.
Mcx tips Natural gas may trade with a downward bias tracking cues from international exchange. NYMEX gas trades little changed ahead of weekly inventory report. EIA is expected to note a 24 Bcf increase in US working gas stocks which is slightly smaller the 5-year average build of 26 Bcf for this time of the year. While focus will remain on weekly report, slack weather related demand and higher stocks in US storage will limit any major upside.
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