NYMEX June natural gas futures settled 4.2 cents lower at $2.734/MMBtu Thursday as the market reacted to a government storage report that showed a build at the higher end of expectations.
"Prices are falling today due to a 76-Bcf injection which was just above estimates of 74 Bcf," Aaron Calder, senior market analyst at Gelber & Associates, wrote in a daily commentary.
US natural gas in storage increased 76 Bcf to 1.786 Tcf for the week that ended May 1, the US Energy Information Administration said Thursday. The net injection was within Platts consensus expectations of an injection between 72 Bcf and 76 Bcf. EIA in the corresponding week last year reported a 75-Bcf injection, while the five-year average is a 68-Bcf injection.
Calder said the fact that the injection was higher than the five-year average injection despite relatively strong heating demand during the week ended May 1 is "bearish."
"According to our modeling, we'd expect a 54 Bcf injection when presented with as much heating and cooling demand we saw last week," he said. This suggests that the market is oversupplied by about 3 Bcf/d -- a situation Calder expects is likely to continue.
"We're looking ahead to a very mild May and there's been nothing in the fundamental data to suggest that the demand response will be able to keep up with elevated production," he said.
Eventually, however, the market expects production growth to fade, as evidenced by elevated longer-dated futures for August and September, Calder noted.
Gene McGillian, senior analyst at Tradition Energy, said Thursday's price decline is not surprising and that the market remains vulnerable to a further drop.
"The switch from lingering cold to the idea that we'll see temperatures in the mid-80s across large parts of the country I think puts this market at risk," he said.
Like Calder, McGillian also doesn't expect production to drop off in the near-term, which should support "big, healthy injections" in the weeks ahead.
"Going forward, until we see real summer temperatures [to spur cooling demand], this market is still vulnerable to a further correction," McGillian said.
The National Weather Service, in its eight- to 14-day weather forecast, called for an elevated probability of below-normal temperatures across parts of Texas, the Southwest, the Rockies and the West. It also called for an elevated probability of above-normal temperatures across large parts of the Northeast, Southeast, Midwest and Northwest.
The June gas futures contract traded Thursday in a range of $2.711-$2.821/MMBtu.
The NYMEX settlement is considered preliminary and subject to change until a final settlement price is posted at 7 pm EDT (2300 GMT).