Market Update: August 16, 2023

This week, natural gas prices dropped back down to the former trading range that we have been experiencing most of the summer. Last week, the September NYMEX contract briefly broke through the upper trading band as storage surpluses decreased and European prices spiked thus supporting future LNG demand. Bearish investors regained control this week as a milder weather pattern is forecast and as seasonal norms begin to retreat. Current production also remains very strong while LNG demand continues to remain under 13 BCF per day.

The latest storage report from the EIA stated an injection of 29 BCF which brings the new inventory level to 3.03 TCF. That level is 535 BCF above last year’s level and 305 BCF above the 5-year average.

Crude oil traded back down to $81.00 this week as an analyst from Fitch warned that ratings downgrades are possible for several US banks. When banks are downgraded access to foreign deposits and fed funds could be affected thus making it more difficult to lend both domestically and internationally. Additionally, economic data from China continues to be weak as interest rates for one-year loans to banks were cut by 15 basis points (.15%).

According to Baker Hughes, for the third week in a row the total rig count dropped by five rigs bringing the new total to 654 rigs. Gas rigs accounting for all five of the rigs dropped while oil rigs remained unchanged. One year ago, the total rig count sat at 763 rigs.

This week’s additional graphic from EIA highlights Mexican gas supply. US exports to Mexico set a record of 6.8 BCF per day in July of 2023 according to Wood Mackenzie. Power generation typically causes the natural gas demand in Mexico to peak during the summer months.