US natural gas futures jump nearly eight percent on small storage build

US natural gas futures on Thursday soared almost 8 percent on a much smaller-than-expected weekly storage build and on forecasts calling for continued hot weather over the next two weeks. On its first day as the front month, gas futures for September delivery on the New York Mercantile Exchange rose 20.1 cents to settle at $2.873 per million British thermal units. That was the biggest daily percentage gain since late May.
The US Energy Information Administration said utilities added just 17 billion cubic feet of gas into storage during the week ended July 22, the least for that week since at least 2010. The build was much lower than analysts' 26 bcf consensus estimate in a Reuters poll, and compared with builds of 52 bcf for the same week a year earlier as well as the five-year average.
"The smaller build suggests a greater boost to power sector demand from summer heat than expected, which may carry over into the next set of numbers," Tim Evans, energy futures specialist at Citi Futures said in a note. Early storage estimates for the week ending July 29 ranged from injections of 2 bcf to 20 bcf, with an average build of just 10 bcf. Out West, the California power grid operator urged consumers to conserve electricity for a second day in a row on Thursday to help maintain power reliability during a heat wave.
Utilities have injected 809 bcf of gas into storage since the start of the injection season in April, versus 1,362 bcf during the same period last year and a five-year average of 1,093 bcf. Despite the smaller-than-normal injections, analysts still expect stockpiles to reach an all-time high at the start of the winter heating season in November.
That inventory glut has kept a lid on next-day prices at the Henry Hub benchmark in Louisiana, which have averaged $2.14 so far this year. That compares with $2.61 in 2015, the lowest since 1999. Those low prices have encouraged power generators to burn record amounts of gas instead of coal and prompted producers to reduce output as they wait for prices to rise.