THE WALL STREET JOURNAL

Natural Gas Rises on Shrinking Surplus

Surplus to years past has come down from more than 50% in just three
months


By TIMOTHY PUKO / Updated July 8, 2016 5:05 p.m. ET


Natural-gas prices inched higher Friday on signs a record surplus continues to ease.
Natural gas for August delivery settled up 2.4 cents, or 0.9%, at $2.801 a million
British thermal units on the New York Mercantile Exchange, the highest settlement
since May 2015. It did snap a five-week winning streak, losing 18.6 cents, or 6.2%
for the week. But the market stabilized after posting all of those losses in one
session Tuesday.


Friday’s climb came largely from data the U.S. Energy Information Administration
released Thursday, an analyst and trader said. It showed inventories as of July 1
totaled 3.2 trillion cubic feet, 20% above levels from a year ago and 23% above the
five-year average for the same week.


While those inventories still could challenge a record high going into the winter,
the surplus compared to years past has come down from more than 50% in just
three months.


“This dynamic of surplus reduction is a more important price motivator than the
static factor of a large supply overhang,” Jim Ritterbusch, president of energyadvisory
firm Ritterbusch & Associates, said in a note. The gas market is
“gradually developing a base for a renewed price advance.”


UBS analysts on Thursday said stockpiles were refilling so much slower than
expected that they reduced their estimate for storage levels to start the winter to 3.9
trillion cubic feet from 4 trillion. That led them to raise their price forecasts for the
second half of the year. Third-quarter prices are likely to be $2.80/mmBtu, up from
its previous estimate of $2.25, and fourth-quarter prices will be $3.00/mmBtu, up
from $2.60, UBS said.


“The upward revision is due to better-than-expected demand, which has been
driven by...hot weather and increased coal-to-gas fuel switching from low prices,”
it added.


Natural-gas demand grew in the late spring and early summer as power generators
burned more gas because of hot weather, high demand for air conditioning and
lower-than-expected output from nuclear, wind and hydropower units, according to
analysts.


The summer heat is still playing a role in boosting gas prices, said Kent
Bayazitoglu, analyst at the energy-consulting firm Gelber & Associates in
Houston. Pipeline models show the country on Thursday hit its yearly high for gasfired
power demand and prices could climb toward $3/mmBtu again if the hottest
weather forecasts for mid-July prove correct and keep demand high, he added.


FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND
MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES
MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY
RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT
IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE
RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL
DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED
IN THE PRICE OF THE UNDERLYING FUTURES.