Natural gas remains under pressure ahead of EIA storage data

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Natural gas remains under pressure ahead of EIA storage data

EIA storage report becomes key short-term catalyst

The main short-term event will be today’s EIA storage report, which is due at 10:30 ET. For the week ending August 7, inventories increased by 36 Bcf to 3,153 Bcf, compared with the previous build of 33 Bcf. As a result, they remain around 198 Bcf, or 6.7%, above the five-year average, although they are already 25 Bcf below last year’s level. The market is currently looking for a build of around +15 Bcf for the week ending August 14, meaning a much smaller injection due to the heat and elevated power burn.

If the actual increase does come in close to 15 Bcf or lower, the surplus relative to the five-year average will continue to narrow, which could give gas a new upside impulse. However, the medium-term backdrop remains less favorable for bulls: the EIA forecasts inventories at 3,985 Bcf by the end of October, the highest level ahead of the heating season since 2016, mainly due to high production and lower LNG feedgas during maintenance at Freeport LNG.

Middle East risks and Treasury yields add volatility

Geopolitics in the Middle East remains an additional premium in prices, although its impact on Henry Hub is mostly indirect. Restrictions on shipping through the Strait of Hormuz remain in place, while tensions around Iran and new threats in the region have already pushed Brent above $90. For the global gas market, the main risk is linked to possible disruptions to LNG supplies from Qatar and transportation through Hormuz, where any serious disruption to exports would sharply increase European TTF and Asian JKM, raise the relative attractiveness of U.S. LNG and, consequently, increase demand for gas inside the U.S.

For now, the market is not pricing in a full-scale loss of Qatari volumes, so this factor creates more of an asymmetric upside risk than serves as the main current driver for Henry Hub. The EIA also explicitly states that its August outlook assumes that restrictions through Hormuz will continue at least through August.

Another factor is the sharp volatility in U.S. Treasuries. After yesterday’s decision by the U.S. Treasury to increase buybacks of long-term bonds, yields initially declined, but today that move has been almost completely reversed: the 10-year yield has again approached 4.70-4.71%, while the 30-year yield has risen to 5.24-5.26%. For natural gas, the connection is not direct, but persistently high yields increase the cost of capital for producers, pipeline operators and LNG projects and, over a longer horizon, may limit investment in new capacity.

In the short term, another factor is more important: rising yields can support the dollar while at the same time increasing pressure on risk assets and dollar-denominated commodities. Therefore, the key drivers for gas right now remain the weather, today’s storage data and LNG feedgas, while the bond market acts more as an amplifying macro factor.

For now, downside risks toward support in the $2.70-2.65 area prevail, but the EIA storage data, as I noted in the article Natural gas holds above $2.80 as buyers test resistance, could change the situation either for the better or for the worse.

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