HardAssetsInvestor

Written by Sumit Roy  |

June 03, 2011

Natural Gas: Prices Surge w/ Inventory Deficits

Details

Natural gas put in a huge double-digit advance this week, as inventory concerns more than offset bearish production figures.

The Energy Informational Administration (EIA) reported that storage operators injected 83 billion cubic feet into storage in the week ending May 27, 2011. That was below estimates that were calling for an injection of between 90 and 94 bcf, as well as last year’s build of 88b cf and the five-year average of 101 bcf.

In turn, the inventory deficit against last year and the five-year average rose to 250 bcf and 90 bcf, respectively. These injections into storage are part of the yearly cycle of natural gas supply and demand, and insufficient natural gas going into storage now can mean shortages in the future during peak demand.

Natural gas prices spiked to the highest levels since January, above $4.85 after the bullish report. On the week, prices rallied nearly 10 percent and are now challenging the upper end of their recent range.

Weather began to heat up seasonally last week, but remains relatively mild. Total electricity generated totaled 75,714 Gwh, according to the Edison Electrical Institute, up 10 percent from last week, but down 3.6 percent from last year. As we get further into June, weather will become increasingly important as a driver for prices.