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US Natural Gas Update: Futures Drop on Oversupply Worries After Large Inventory Build

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US natural gas futures extended losses in after-hours trading Thursday after government data showed a larger-than-expected increase in underground storage, adding to pressure from strong production and above-average inventories.

The front-month Henry Hub contract and the continuous contract were both down 2.57% at $2.732 per million British thermal units.

Thursday's selloff accelerated after the US Energy Information Administration reported that natural gas inventories increased by 36 billion cubic feet in the week ended Aug. 7. The build exceeded analysts' expectations for a 31 Bcf increase and the five-year average build of 33 Bcf.

Working gas in underground storage totaled 3,153 Bcf, the EIA said, leaving inventories 25 Bcf below year-earlier levels but 198 Bcf above the five-year average of 2,955 Bcf. US nat-gas inventories are currently 6.7% above their 5-year seasonal average, a sign of robust supplies, Barchart said.

Storage growth has now exceeded the seasonal benchmark for four consecutive weeks and seven of the past eight weeks, widening the surplus to the five-year average, the Energy Buyers' Guide said.

Lingering heat across Texas and the Southeast continues to bolster power-sector demand, providing some underlying support for gas prices. But strong production and healthy inventories are increasingly weighing on the market as peak summer demand begins to fade.

US natural gas production is averaging a record 111.2 Bcf/d so far in August, up from 110.7 Bcf/d in June, according to Trading Economics.

Supply remains more than sufficient to meet power-sector demand of 48.9 Bcf/d and LNG feedgas demand of 18.2 Bcf/d, Gelber & Associates said.

Near-term heat is expected to keep power demand firm, while LNG feedgas demand is forecast to rise to 19.9-20.3 Bcf/d over the next two weeks as export facilities ramp up.

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