Low injection into U.S. storage sparks gas rally

Natural gas prices jumped on both sides of the border after a smaller than expected injection into U.S. storage raised expectations of diminishing supply.

Prices for July gas in Alberta rose by 15 per cent Thursday to $1.92 per gigajoule, the largest increase in a single day since natural gas exchange and Internet market NGX started recording details in December 2007.

In New York, natural gas futures gained 31 cents to settle at $2.495 per million British thermal unit after the Energy department reporteda 67-billion-cubic-foot injection into storage. Analysts had expected an increase of 75 bcf against a five-year average of 88 bcf, according to the Energy Information Administration.

The lower injection had some analysts speculating severe budget cuts to gas drilling programs were finally taking effect through lower production volumes, although others said the bounce likely was a result of short-buying.

Lower numbers had been reported in the previous two weekly reports without a similar reaction, said Martin King, with Firstenergy Capital Corp. The Calgary analyst still believes storage levels will be high by the end of October, resulting in another round of weakness.

However, the trend will likely change next year when the results of substantial drilling program cuts catch up to demand, he said.

“I don’t think there is a good fundamental reason now to stay as pessimistic on 2013 as we were,” he said. “It is a more positive sounding tone for natural gas.

“The fact that they have been cutting to the bone on gas drilling in the last six month, be it shale or otherwise, that’s finally going to make a difference,” he said.