On Thursday, July 15, the EIA reported an injection of 78 Bcf of gas into underground storage for the week ending July 8th. While the market consensus was for an injection of 80 Bcf, the NYMEX prompt month August contract rallied 26 cents to close at $4.58/mmbtu. What drove the rally was the breakdown of the regional storage numbers as well as short covering in the market with weather forecasts calling for average to above average temperatures in the East for the next 15 day period. Over the past month, the NYMEX natural gas has traded from a high of $5.19/mmbtu on June 16th to a recent low of $4.30/mmbtu as of July 14th.
A look at the breakdown of the injection number by the three producing regions revealed a seasonal injections of 11 Bcf in the West, 24 Bcf in the Producing region but only 43 Bcf in the East. It is in the east, where the majority of underground storage is located a typical injection for the second week of July is approximately 56-58 Bcf. This week’s report incorporated the July 4th holiday weekend so the injection would otherwise have been lower. The 43 Bcf injection was the second lowest on record going back to 1994 with only 1999 coming in lower (See chart below).
The key driver behind the low injection in the East was the record heat experienced over the course of the week. The map below shows the deviation from average temperatures across the east. According to NOAA, for the week ending July 8th temperatures across the lower 48 states were 1.4 degrees warmer than normal and 3.3 degrees warmer than average. In the Northeast and upper Midwest, temperatures were 5-9 degrees above normal with several cities on the East Coast setting new record temperatures.
These above average temperatures set the stage for higher AC cooling load and regional ISO loads that were at their highest since August 2007. The heat in June produced higher utility output that is expected to carry over into July. In its monthly report on industrial production the Federal Reserve reported that utility output rose 2.7% for the month of June.
While above average temperatures will likely drive lower storage injections in the East, higher production levels of close to 60 Bcf/day continue to bring supply to market.
Sources: Federal Reserve, PJM, EIA, NOAA