Rapid storage increase could impact gas prices this summer

Petroleum News Staff

Rapid build of U.S. natural gas storage means that gas prices could fall below $5 per thousand cubic feet for a portion of this summer, energy analyst Stephen Smith from the independent Houston, Texas, research firm Stephen Smith Energy Associates said June 16.

Smith said the 125 billion cubic feet increase in storage during the first week of June was “off the charts” to the high side of his model.

“It suggests that storage build data may have been missing or understated for the one or two prior weeks,” Smith said. “So the market may have panicked a week too early.”

Analysts had expected a price correction on demand erosion following the winter heating season.

“But we had expected a multiple week sequence of large deficit reductions ... with downward pressure on prices for several weeks rather than the precipitous one-week price decline that occurred,” Smith said.

For the week ending June 13, Smith had projected a gas build of 142 billion cubic feet, bringing total storage to 1.466 trillion cubic feet. However, that would still be 247 billion cubic feet short of the five-year average of 1.713 billion cubic feet between 1994 and 1998.

Still, the downward pressure on gas prices last week was “unlikely to ease much” because of the anticipated 142 billion cubic foot build, which would exceed the norm by “a massive” 51 billion cubic feet, Smith said.

“If this summer is normal or remains on the mild side as some weather forecasters expect, we expect stronger-than-normal storage builds to continue for several weeks and the seasonal storage deficit to continue to shrink,” he added.

Smith said the odds are increasing “that gas prices could fall below $5/Mcf for some part of the summer.”