Natural gas futures fell further in early trading Friday as the market continued to mull a larger-than-expected inventory build and signs of returning production volumes.
The August Nymex contract was trading at $2.020/MMBtu, down 2.1 cents day/day as of 8:35 a.m. ET. The September contract, set to take over as the prompt month on Tuesday, was down 1.4 cents at $2.058.
The U.S. Energy Information Administration (EIA) on Thursday reported a 22 Bcf injection into Lower 48 storage for the week ending July 19. That was higher than the midpoint of surveys but lighter than historical norms.
The increase lifted inventories to 3,231 Bcf, or 456 Bcf higher than the five-year average and 249 Bcf above year-earlier levels, according to EIA.
The bearish miss, coming on the heels of another surprise in the opposite direction a week earlier, had the market scratching its head.
“Given what we are seeing in the flow data and the storage facility behavior, it is difficult to rationalize the week-over-week changes implied by each of the last two EIA reports,” according to Wood Mackenzie analyst Eric McGuire. The previous week’s miss was 11 Bcf looser than Wood Mackenzie modeling and 9 Bcf to the tight side the previous week.
However, on net, the injections over the past two weeks closely followed Wood Mackenzie modeling, McGuire said.
Similarly, EBW Analytics Group’s senior analyst Eli Rubin said the “careening” back and forth of surprise builds over the past three weeks cumulatively added up to 97 Bcf of gains. That is “a mere 0.02 Bcf/d deviation” from the firm’s projected 99 Bcf of additions.
The last three EIA prints were “noise rather than a signal,” Rubin said.
Meanwhile, Wood Mackenzie estimates showed daily production at 102.3 Bcf/d for Friday based on early cycle readings. Later nominations have been adding onto initial estimates. Thursday was no exception, which was revised higher to 102.5 Bcf/d.
Notably for Friday, South Central production at 48.7 Bcf/d is its highest reading since early March, according to Wood Mackenzie data.
Looking ahead to the next EIA report, supply concerns remain topical for the market with output hovering near 102 Bcf/d, the same level as last week, which produced the looser print on Thursday, according to Tudor, Pickering, Holt & Co. analyst Justin Martin.
“High production drove lower confidence in strip prices despite the historically undersupplied build season,” he said.
