August 19, 2022

Natural gas drops 10%, on track to worst month in more than three years

Natural gas drops 10%, on track to worst month in more than three years

LNG tank.

Artinon Brickmong / IM | Eyeem | Getty Images

US natural gas futures It fell below $6 per million British thermal units on Thursday, after an inventory report showed a larger-than-expected storage build, sparking fears of oversupply in the market.

Henry Hub futures are down 12.5% ​​to $5.68 per million British thermal units. The contract is now down nearly 30% for June, on track to mark the worst month since December 2018.

The US Energy Information Administration said Thursday that inventories for the week ending June 24 rose by 82 billion cubic feet.

David Givens, president of natural gas and energy services for North America at Argus Media, said he expects to build 76 billion cubic feet.

“The number 82 has been bearish in that regard,” he said, adding that storage buildup is near normal levels.

Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings, noted “the sensitivity of the demand-supply balance to natural gas in the summer cooling season for demand.”

“Gas was one of the most important exports for commodities, and energy burns were strong in the first half of 2022. When a commodity is at these high price levels due to perceived scarcity, any underlying indicator will cause the commodity to swing wildly either up or down,” he said.

Part of this month’s weakness was also due to Freeport LNG’s announcement earlier in June that the Quintana Island, Texas facility would be offline for longer than expected after a fire.

The announcement caused natural gas futures to drop more than 16% per day Where traders are afraid of oversupply in the market.

The Freeport process accounts for approximately 17% of US LNG processing capacity. A record amount of US LNG has gone to Europe in recent months as the bloc looks to move away from Russian energy. Demand for LNG in turn boosted Henry Hub prices.

The Pipeline and Hazardous Materials Safety Administration said Thursday that the facility will not be allowed to return to normal operations until the PHMSA considers it safe.

“As a result of the initial investigation, conditions at the Freeport LNG export facility appear to pose a risk to public safety, property or the environment,” the agency said in a statement.

Despite significant declines in June, natural gas is still up more than 50% for 2022.

John Kilduff, partner at Again Capital, noted that while stockpiling levels are still less than 10% from last year’s levels, “we’re in a manageable area now.” He added that the weather forecast in the northeast indicates moderate conditions until mid-July.

Natural gas prices soared above $9 per million British thermal units in May, reaching the highest level since August 2008.