Natural Gas Report: Natural Gas Holds Steady After 105 Bcf Injection (UNG, UNL, GAZ, FCG, IEZ, RRC, HK, SWN, UPL)

Sumit Roy:  The Energy Informational Administration reported that storage operators injected 105 billion cubic feet into storage in the week ending May 20, 2011. That’s above analyst estimates, which were calling for an injection between 93 and 95 bcf, but close to some pipeline scrape models that saw a build in the 102 to 103 bcf range. While last week’s injection was large by any measure, it was near the 104 bcf build of a year ago, and only modestly higher than the 97 bcf five-year average.

Using the EIA’s weekly data set, inventories remain 245 bcf below the year-ago level and 72 bcf below the five-year average.

Natural gas prices moved a bit lower after the release of the latest inventory figures, though they remain firmly within the recent low-to-mid-$4’s consolidation range they’ve been in.

Weather last week was extremely mild, but a couple weeks from now, things should start to heat up. According to the Edison Electric Institute, 68,743 GWH of electricity was generated last week, or 3.2 percent below last year.

Baker Hughes rig count data is expected to be released tomorrow at 1 p.m. EDT as usual. Last week, we saw the number of rigs drilling for natural gas decline by 8 to 866, to the lowest since February of last year. The count is now 126 rigs off last year’s peak set in August, but production has continued to stay elevated amid increasing in productivity. Next week we will see if that remains the case with the release of the latest production figures for March from the EIA.

As we wrote last week, “The outlook for natural gas remains relatively balanced. A colder-than-normal end to this past winter helped create a year-over-year deficit in inventories. Moreover, the rig count is slowly but steadily declining as operators continue to shift capital to more compelling liquids-rich (oil and NGLs) prospects.

Yet after initially rallying as high as $4.70/mmbtu, natural gas prices have come back toward the lower end of their recent range near $4/mmbtu.

This is largely because production continues to grow despite the muted price environment, reinforcing that view that supplies remain ample. With prices near the lower end of their range, however, there may be upside in the event of a warmer-than-normal summer that increases the year-over-year inventory deficit even further.”

To see how this outlook evolves, we will be closely watching next week’s output figures from the EIA, and of course, upcoming weather forecasts for this summer.

NOAA’s 6-10 Day Weather Outlook:

NOAA’s 8-14 Day Weather Outlook:

Tickers: United States Natural Gas Fund (NYSE:UNG), United States 12 Month Natural Gas (NYSE:UNL), iPath DJ-UBS Natural Gas TR Sub-Idx ETN (NYSE:GAZ), First Trust ISE-Revere Natural Gas Idx (NYSE:FCG), iShares Dow Jones US Oil Equipment Index (NYSE:IEZ), Range Resources (NYSE:RRC), Petrohawk Energy (NYSE:HK), Southwestern Energy (NYSE:SWN), Ultra Petroleum (NYSE:UPL).

Written by Sumit Roy From Hard Assets Investor     

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