The biggest news of last week occurred when the weekly inventory report showed the largest single week injection of gas into storage (132 BCF) in more than 11 years. Prices dropped on Wednesday in anticipation of a 120 BCF injection and then dropped a bit more on Thursday when the report outperformed expectations. The current inventory level now sits above the 5 year average (by 22 BCF) for the first time since before we endured the record cold February earlier this year.
However, Thursday’s price drop was limited to less than one penny compared to Wednesday’s settlement. This lack of bear-ish response demonstrates an important dynamic that is currently at play in the natural gas market. On the one hand there is record production occurring each day which is quite bearish, but the other side is of the equation is a dropping rig count. The latter suggests production will decrease at some point which would be bullish for pricing.
Analysts are keeping a watchful eye on both the weekly inventory report as well as rig count. The two seem to be offsetting one another so much so that the natural gas market is essentially range-bound and capped to $3.00 on the high side and $2.50-$2.60 on the low side.
Power prices in New York dropped last week in conjunction with falling natural gas prices. However, other markets listed below increased with peak cooling season nearing. We still generally expect power markets to follow natural gas prices but are not shocked to see some divergence this time of year.