Tropical Storm Isaias (the ninth named storm, a record this early into the North Atlantic hurricane season) combined with an oppressive heatwave across much of the eastern U.S. to slow EIA natural gas stock build to a nominal 26 billion cubic feet (bcf) build compared to prior week.
Extreme temperatures drove higher use of AC cooling and consumption of electricity. Demand generation and consumption of gas to power turbines led to a flattening of the seasonal stock build.
Despite the slowdown, stocks are 15 percent above the five-year average and 24 percent above last year’s levels.
Forecasters are tracking Tropical Storm Isaias, currently to the southeast of Hispaniola and expected to continue northwest toward Florida. Its path over the Dominican Republic/Haiti and Greater Bahamas should prevent any significant strengthening of the storm prior to its U.S. landfall. The storm seems likelier to bring heavy rain and localized flooding than wind damage but will still need watching through the weekend.
Natural gas stocks rose in four of seven regions, with the biggest gains seen in the Midwest and net deficit in the south. This makes sense given the multiple heatwaves that have dominated the east and deep southeast in July, which may go down as the hottest July on record.
Although crude oil and natural gas prices have recovered somewhat from their April lows, prices are still depressed due to slowing economic activity, as shown by a weakening GDP. Lower prices have changed the economics of drilling activity and raised the breakeven threshold for financially viable extraction. As a result, we have continued the trend toward shuttering of capacity and temporarily suspensions of rig activity.
The U.S. recently set a fresh record low in the number of active natural gas rigs, down nearly two-thirds from the level in January 2019. With only 33 percent of capacity running vs. 18 months ago, production rates will be pressured heading into the fall. Every astute energy buyer should be watching this as summer ends and we enter the fall period ahead of heating season.