Bloomberg, Reuters
New York
Natural-gas stockpiles are recovering faster than estimated from a winter battering in the US, with prices now 30% below a peak in February.
Hedge funds reduced their bets on a rally for a fifth week and to the lowest level since December, US Commodity Futures Trading Commission data show.
Prices dropped 5.7% in May as inventory gains surpassed analysts’ estimates for four consecutive weeks. Stockpiles are now 40% below the five-year average level, compared with 50% in April.
“We’ve had a pretty mild May and that’s raised hopes that these big storage injections will continue all summer,” Phil Flynn, a senior market analyst at Price Futures Group in Chicago, said by phone May 30. “There’s growing optimism about the supply picture.”
Natural gas fell 4.7¢, or 1%, to $4.505 per million British thermal units on the New York Mercantile Exchange in the week ended May 27, the period covered by the CFTC report. Prices rose 0.6% to $4.569 per million Btu at 9:09am yesterday.
An Energy Information Administration report on May 29 showed inventories rose 114bn cubic feet to 1.38tn in the week ended May 23, topping the median increase of 110bn in analyst estimates compiled by Bloomberg. The gain was greater than the five-year average for a sixth week.
“The pace of restocking picked up and traders began to have heightened expectations about the size of weekly supply increases,” Teri Viswanath, the director of commodities strategy at BNP Paribas in New York, said in a phone interview May 30.
Gas demand fell on average by 5.7bn cubic feet a day, or 8.8%, in May to 56.7bn from almost 65bn in April, according to data from LCI Energy Insight, an analysis and consulting firm in El Paso, Texas.
The EIA, the Energy Department’s statistical arm, estimates that record production will boost stockpiles to 3.405tn cubic feet by the end of October, which would be the lowest level for the time of year since 2008.
Marketed gas output in 2014 will climb for a ninth straight year, reaching an all-time high of 72.26bn cubic feet a day, as new wells come online at shale deposits such as the Marcellus in the Northeast, EIA forecasts show.
In other markets, speculators raised bets on crude to a record as supplies at Cushing, Oklahoma, decreased to a five-year low and gasoline demand expanded.
Money managers boosted net-long positions in benchmark West Texas Intermediate futures by 7.4% to 348,069, the highest in data going back to 2006, in the week ended May 27, the data show, pushing prices to a one-month high and helping WTI cap the first monthly gain since February.
Stockpiles at Cushing, the delivery point for WTI, fell for the 16th time in 17 weeks in the week ended May 23, the EIA said. Supplies have dropped as the southern leg of the Keystone XL pipeline began moving oil to Gulf Coast refineries from Cushing.
WTI futures gained $1.67 to $104.11 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. The contract fell 87¢ to $102.71 on May 30, ending the month up 3%.
Net-long positions in gasoline rose by 1,311 futures and options combined, or 2.2%, to 60,130, the CFTC report showed. Futures advanced 1.1% to $2.9952 a gallon on the Nymex in the week covered by the report and settled at $2.9965 on May 30. The fuel fell 0.4% for the month.
Gasoline at US pumps, averaged nationwide, rose 0.1¢ to $3.669 a gallon on May 31, according to data from Heathrow, Florida-based AAA, the nation’s largest motoring group. Retail prices are down 1.8¢ for the month.
Money managers’ bets on ultra-low sulfur diesel slid by 753, or 2.7%, to 27,657 futures and options combined, the CFTC report show. Futures dropped 0.3% to $2.9399 a gallon in the week covered by the report and were down 1.7% for May. Net-long positions on four US natural gas contracts held by money managers slid by 13,300 futures equivalents to 326,711 in the week ended May 27, according to the CFTC. Long positions decreased by 1.6%, falling for a fifth week, while bearish bets gained 4,059 to 229,460.
The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures US Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.
“We would need a very cool summer to push gas prices much lower,” Price Futures Group’s Flynn said. “Inventories are still at an 11-year seasonal low, so we still have a long way to go to get back to normal levels.”
Meanwhile, British wholesale natural gas prices dropped to their lowest in more than 3-1/2 years yesterday as Russia and Ukraine reached a temporary gas supply deal, while healthy alternative supplies and warm weather also added downward pressure.
Gas for delivery within the day traded at 41.50 pence per therm at 0850 GMT, its weakest price since October 2010 and a third lower than at the start of the Ukraine crisis in late February.
“All signs from Russia and Ukraine are for compromise and against cutting gas supplies. Adding to that, we’ve got very mild weather, healthy storage and good LNG imports, so that’s further weighing on prices,” one gas trader said.
Russia’s Gazprom gave Ukraine yesterday an extension into next week to resolve the gas price dispute at the heart of the two countries’ confrontation, a day before Moscow was due to turn off the taps unless Kiev paid in advance.
“Less concern over a Russia-Ukraine gas cut is also pulling down prices for next winter, when a supply cut would hit markets hardest. Also, Brent oil prices are back below $110 a barrel, removing further support from seasonal contracts,” the trader said.