US Energy Information Administration data showed a smaller weekly build in natural gas inventories, with storage rising by 92 billion cubic feet in the week to 22 May. That compares with a 101 billion cubic feet increase in the prior week.
The slowdown points to a reduced pace of injections into storage over the latest reporting period. The update focuses on the change in inventories, with the latest build coming in 9 billion cubic feet below the previous week’s gain.
Current Inventory Levels and Market Conditions
We see the latest natural gas storage injection of 92 Bcf as a sign of a persistently loose market, even though it was smaller than the prior week. This build is slightly above the five-year average of 89 Bcf for this specific week, pushing total inventories higher. With storage levels now standing at 2,703 Bcf, we are more than 22% above the historical average.
The primary factor weighing on prices is unrelenting production, with U.S. dry gas output continuing to hover near a robust 102 Bcf per day. This strong supply is keeping a firm lid on any significant price rallies for now. As a result, we expect Henry Hub futures to remain largely range-bound below the $3.00/MMBtu level in the immediate term.
Outlook, Potential Bullish Catalysts, and Trading Strategy
However, we are closely watching two key bullish factors that could increase volatility in the coming weeks. LNG export demand remains very strong, with feedgas deliveries to terminals consistently above 13.5 Bcf per day. More importantly, early forecasts from NOAA are pointing toward above-average temperatures across Texas and the South for the first half of June, which will kickstart cooling demand earlier than usual.
Given this oversupply but with strong demand on the horizon, we are looking at strategies that benefit from this dynamic. We are considering selling out-of-the-money call options, such as the July $3.50 calls, to collect premium from elevated volatility expectations for the summer. This position benefits if prices chop around or fail to break out significantly higher in the near term.
Our focus for the next few weeks will be on daily power burn data and updates to the 6-10 day weather forecasts. A significant and sustained heatwave could quickly shrink the storage surplus and challenge our currently bearish outlook. We will also monitor the next two EIA reports to see if injections begin to fall below the five-year average.
