The weekly EIA gas storage numbers arrived on Thursday and the trend continues. Yesterday’s gas storage injection was only 26 bcf (billion cubic feet) against last year’s number of 48 bcf and the five year average increase of 61 bcf. In just one week the one year surplus has contracted 1.2% to 18% while the five year excess diminished an even more significant 1.7% to only 15.8%. The storage “shoulder” season as it is known officially runs through the end of October or about 14 more weeks to go.

We now have an even dozen consecutive data points in a row of these stingy inputs to our national gas cache…..and there is no letup in sight. Hotter than normal weather for the Central and Eastern portions of the country is expected to result in power companies increasing natural gas demand to 34 bcf per day or a 6 bcf per day over last year. This represents over a 20% increase.

We’re Headed To $8 Natural Gas

Now heed the following. Ceteris Paribus should the pace of surplus storage reduction continue at an equal pace from the May 10 peak supra normal stockpile figures of 48.4% and 49.9% of the one year and five year respectively, then the five year average surplus would go below mean just a little over five weeks from now. It would take just under seven weeks to crack below last year’s figure. Further extrapolation under the same above assumption suggests that by the official end of the storage season (October 31) the one year and five year storage volumes would be in deficit to their historical averages by 19% and 27% respectively.

Market Is Stressed Now

The gas market is already showing signs of dislocation. “Backwardation” is the market condition whereby the front month of a futures contract sells for more than the next month. The natural gas market went into “backwardation” on Tuesday of this week when the August gas contract traded at a higher price than the September contract. This is quite an unusual state. This is generally a bullish sign (rising prices) as it implies a market supply shortage.

via Natural Gas Is Heading Higher: More Data – Forbes.