Natural gas slips 2% as EIA storage build hits season low

A smaller-than-expected EIA storage build failed to lift natural gas futures, which slipped as record production keeps the supply surplus firmly in place.

Natural gas futures slipped Thursday even after the EIA reported the smallest weekly storage build of the injection season, as record output above 111 Bcf a day keeps the supply surplus intact.

The U.S. Energy Information Administration's weekly report showed inventories rising by the least since the injection season began, a reading that would normally support prices but did little to dent a surplus that has run above the five-year average for weeks.

September natural gas futures traded at $2.756, down 2.06 percent, after Wednesday's rally to the highest level in nearly four weeks stalled short of the 50-day moving average at $2.936. Production has averaged more than 111 Bcf a day in August, above July's record monthly pace, while the EIA projects storage to reach 3,985 Bcf by the end of October, the highest pre-winter buffer in a decade.

The modest build signals the heat across the South and West is finally reaching the data, but with output absorbing demand and the rig count climbing to 128, the supply balance still favors sellers heading into the shoulder season.

The storage report covers a week when cooling demand was already elevated, with U.S. electricity output rising 7.0 percent year-over-year to 99,864 gigawatt-hours. Strong wind generation cut into gas burn during peak demand periods, helping push the injection below prior weeks. Inventories remain 6.7 percent above the five-year seasonal average, and the EIA's Short-Term Energy Outlook projects the buffer to widen to 3,985 Bcf by the end of October.

The supply side has not flinched all summer. Lower-48 dry gas output reached 114.4 Bcf a day in mid-August, up 4.0 percent year-over-year, while demand ran at 81.6 Bcf a day. Baker Hughes reported the active natural gas rig count rose four to 128 for the week ending Aug. 14, and Energy Transfer's Hugh Brinson pipeline reaches full 1.5 Bcf-a-day capacity on Sept. 1, sending more Permian gas to Henry Hub just as seasonal demand weakens.

The last time storage entered fall at this scale was a decade ago, when the pre-winter buffer topped 3,900 Bcf and prices spent the shoulder season pinned below $3. The EIA has cut its third-quarter Henry Hub forecast to $2.87 per million British thermal units on strong output and softer LNG feedgas, which slipped to 18.1 Bcf a day. Firm crude on Middle East tensions has lent the broader energy complex some support, but it has not been enough to shift the domestic gas balance.

Technically, the market is neutral between the summer lows and Wednesday's high. The main trend turned up when buyers cleared $2.830, but the rally stalled at $2.875, just under the 50-day moving average. The retracement zone at $2.798 to $2.840 has flipped back to resistance, and a failure to hold $2.698 would open a test of the main bottom at $2.616.

The next EIA report will show whether the smaller build was a one-off or the start of a tightening trend. If the heat keeps drawing down inventories, buyers may finally hold a rally above $2.830. If production keeps absorbing demand, the weather trade stays what it has been all month — a bounce that sellers fade at the top of the range.

This article is for informational purposes only and does not constitute investment advice.