Natural gas holds near monthly highs as storage data take center stage

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Natural gas holds near monthly highs as storage data take center stage

Smaller storage build could reinforce bullish case

The main event of today’s session will be the EIA report for the week ended August 21, which will be released later. The current consensus points to an inventory build of around 21 Bcf, while the five-year average increase for this week is about 33 Bcf. If the forecast is confirmed, the storage surplus relative to the five-year average would narrow from around 185 Bcf to 173 Bcf.

This would provide further evidence that high summer power generation is gradually reducing the surplus accumulated earlier. However, supply remains a serious constraint: according to LSEG estimates, production in the Lower 48 reached a new record of around 111.5 Bcf/d in August, compared with 110.7 Bcf/d in July. Flows to the nine largest LNG terminals are running at around 17.1 Bcf/d, slightly below July’s 17.2 Bcf/d, so exports are not yet growing fast enough to fully offset record production.

EIA outlook keeps medium-term upside contained

The medium-term outlook therefore remains significantly more cautious than the current price action. The EIA still expects the average Henry Hub price in the third quarter to be around $2.87/MMBtu and inventories to reach around 3.985 Tcf by the end of October, which would be the highest pre-winter level since 2016.

The agency assumes that high production and comfortable storage levels will keep prices below $3 for most of the coming months. On the other hand, if today’s data again show an injection significantly below the seasonal norm and hot weather persists through the first ten days of September, the market could begin to reassess expectations for the pace of storage accumulation ahead of winter.

Hormuz uncertainty keeps LNG premium elevated

The Middle East has meanwhile become a more mixed factor. Talks between Iran and Oman over a temporary transport corridor through Hormuz reduce the risk of a further sharp deterioration in the situation, but physical LNG flows are still far from normal: restrictions continue to delay supplies from Qatar, while European storage facilities are only around 63% full, the lowest level for this time of year since 2009. European gas remains around €65-66/MWh, while competition between Europe and Asia for LNG keeps the export economics of U.S. gas attractive.

Therefore, as long as NATGAS holds above $2.88-2.90, as I stated in Natural gas breaks key resistance as bullish momentum strengthens, the chances of a test of $2.95 and the psychological $3.00 level remain intact; a sustained move above $3.00 would open the way toward $3.05-3.10. A return below $2.85 would be the first sign that the market has failed to extend the recent breakout and could move back toward $2.78-2.75.

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