The natural gas market traded in a tighter range this week as traders appear to be waiting for the fundamental supply/demand picture to change. Strong overall storage levels compared to historical norms and another month of shoulder season temperatures could keep this market from breaking out one way or another for the next few weeks. Prices have dropped roughly 50% this year due to the milder winter that was experienced in much of the consuming east region.
The latest storage report published by the EIA stated a 75 BCF injection which increased current storage levels against both last year and the 5-year average. Inventory currently sits at 1.93 TCF, which is about 34% higher than last year and about 21% higher than the 5-year average.
This week’s additional graphic from East Daley Analytics breaks down the regional storage situation in the US and highlights the effects of the most recent winter heating season. National data paints an overall bearish picture for the natural gas market but fails to capture regional discrepancies that may influence spreads moving forward. The western third of the country experienced a very cold winter while the eastern sections had much milder temperatures. The weather contrast contributed to a storage deficit of about 38% below the 5-year average in the Rockies and Pacific regions while inventory levels in the Midwest producing and the East regions are about 32% above the 5-year average. Traders will be keeping an eye on basis and cash spreads for those regions as we move into the summer cooling season.
Crude oil slid this week as the May contract settled at $77.29 on Thursday. A bearish outlook on international demand, a stronger dollar and an expected interest rate hike in the UK, US and Europe are all contributing to the decline.
The latest rig count presented by Baker Hughes showed the total rig count rising by five to 753 rigs. Three of the new rigs were oil while gas accounted for the other two rigs. One year ago, the total rig count sat at 695 rigs.