PIRA: Spot Market Remains Long

NYC-based PIRA Energy Group reports that the spot market remains long, awaits Asian 3Q buying for peak summer demand. In the U.S., last week had the fifth largest injection on record. In Europe, producers play central role in European spot price outlook.

Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

With Brazil now set for supply over the next month during the World Cup, the buyer’s market in place will continue to drive prices lower. Asian summer buying is next up on the docket but not yet noticeable. Europe’s option to store unwanted LNG is beginning to thin, as end-May storage levels were closer to what is normally seen in the middle of July.

Fifth Largest Injection on Record, But Futures Rally

In what has become an increasingly familiar trend, early-week NYMEX’s upside momentum was arrested following another modestly higher-than-expected storage build. More specifically, last week’s EIA report revealed a 119 BCF injection that was not only 3-4 BCF above consensus estimates but also marked the fifth largest weekly build dating back some 20 years. It also resulted in the largest increase relative to the five-year average thus far in the 2014 injection season at ~26 BCF.

Producers Play Central Role in European Spot Price Outlook

It is pretty simple formula at this point: if one or more of the major gas suppliers do not cut back production significantly and soon, spot prices are going down severely. The threat of a Russian gas cut-off appears to be diminishing with every public pronouncement, but the situation with European gas balances has become so weak that some combination of Russian, Norwegian, Algerian or Dutch reductions is going to be necessary one way or another.