THE WALL STREET JOURNAL

Natural Gas Gains on Improving Supply-and-Demand Balance

Rallies for second session on far-below-average storage addition


By TIMOTHY PUKO / Updated Aug. 26, 2016 4:10 p.m. ET


Natural gas prices rallied this week on data showing that inventories of the fuel grew far less
than average for this time of year.


Futures for September delivery settled up 2.5 cents, or 0.9%, to $2.871 a million British thermal
units on the New York Mercantile Exchange. Prices rose 11% this week, the biggest one-week
percentage gain since April.


The U.S. Energy Information Administration said Thursday that natural-gas stockpiles grew by
11 billion cubic feet last week, less than the 19 bcf expected by forecasters surveyed by The Wall
Street Journal. That addition is one-sixth of the average addition for that week of the year.


Inventories stand 12% above the five-year average for this time of year, a much smaller surplus
compared with several months ago. That improving balance has been the driving force behind
gas-price gains in the spring and summer that keep it hovering near one-year highs, said Peter
Donovan, broker for Liquidity Energy in New York.


“Some of the fundamentals are not nearly as bad as some guys anticipated a few months ago,” he
added. “The market has been pretty resilient.”


Natural-gas prices are likely to keep rising for now, according to Simmons & Co. International, a
division of Piper Jaffray Cos. The energy investment bank says the shrinking storage surplus and
growing exports are likely to send prices up to $3/mmBtu this year.


But that is about it. “Producers will increase activity and drive production higher as gas prices
reach $3,” the bank’s analysts wrote in a note to clients. They forecast $3 prices for 2017, too,
with “ample low-cost domestic production” being a weight on larger rallies--barring extreme
cold this winter, which would increase demand for the heating fuel.


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.