John Kemp

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Record US natgas stocks weigh on gas, fuel prices

May 26, 2009
The volume of natural gas in working storage rose +103 billion cubic feet (bcf) to 2116 bcf in the week ending May 15 – equalling the previous five-year high set in 2006. The massive overhang of natural gas so early in the summer inventory-building season will keep prices under pressure to maximise consumption by power producers.  It will also weigh on margins for both distillates and residual fuel oil over the summer, and force margins on gasoline higher to keep refineries running.  
By the end of the year and into early 2010, however, natgas production should level off or even fall, as current reductions in the number of new wells being drilled translate into lower output.  At that point, the massive gas surplus will shrink rapidly – especially if lower gasd natgas output coincides with the first stages of an economic recovery in H2 2009 and H1 2010. 
The result should be triple support for distillate prices next winter and spring from: (a) recovering economic activity; (b) higher outright prices for natural gas providing a higher floor for other fossil fuels; and (c) diminished need to maximise natgas combustion in the power system, or even pressure to start conserving scarce fuel in favour of burning coal and petroleum liquids.