US natural gas stockpiles grow by 99 bcf, futures up

10 June 2010 17:55  [Source: ICIS news]

HOUSTON (ICIS news)--US natural gas stockpiles grew 99bn cubic feet (bcf) last week - higher than most predictions - but futures prices on Thursday were trading positive.

The Energy Information Administration (EIA) reported total underground storage levels were reached 2,456 bcf in the week ended 4 June, a 4% increase from the previous week.

Some analysts predicted a three-digit build, but the consensus was an injection in the low-90s bcf.

Analyst Stephen Schork estimated a 94 bcf build based on increased electricity production and the US holiday weekend.

"This report, which includes the Memorial Day holiday, tends to produce the largest injection of the season," Schork wrote in his energy periodical The Schork Report.

Addison Armstrong, director of research for Tradition Energy in Samford, Connecticut, also alluded to The Edison Electric Institute's report that showed US electricity output increased 10.8% year over year and 1% week over week. His prediction was in the mid-90s bcf.

Even though the government report showed inventories growing by a few more bn cubic feet than expected, putting levels 14.4% above the five-year average, futures on the NYMEX gained ground.

At 11:32 New York time (15:32 GMT), an hour after the report's release, the front-month contract was up by 3.5 cents at $4.712/MMBtu. The August futures benchmark was at $4.764/MMBtu, an increase of 2.7 cents from Wednesday.

Martin King, analyst at FirstEnergy Capital in Calgary, Alberta, said demand was proving some upward price support in the face of big inventories.

"Recent prices are still attractive enough for the power generation market, but could start to curb some spot industrial demand if there is a concerted effort to move prices above the US $5/MMBtu level prematurely," King wrote in a research note.

"We feel that such a move is justified a few months from now, but not this early in the cooling season. As such, a rapid pullback in prices to the $4.50 level, or lower, is very possible in the next week or so."

Natural gas prices are an important bellwether for petrochemical commodity values with its use as a feedstock and production fuel.

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By: Ryan Hickman
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