Quick overview
- International oil prices surged due to escalating conflict in Iran, with West Texas Intermediate reaching $91 per barrel.
- U.S. natural gas futures fell by 3% to $3.086 per MMBtu following a report showing higher-than-expected natural gas storage levels.
- Natural gas production in the lower 48 states decreased slightly in June, contributing to market fluctuations despite increased storage.
- Export flows of U.S. LNG dropped in June but are anticipated to rise as maintenance at export facilities concludes.
International oil prices rose sharply on Thursday with heightened conflict in Iran, but U.S. natural gas futures dropped by 3% after a new EIA storage report.
The latest report from the Energy Information Administration showed that natural gas storage rose by 108 billion cubic feet. That was higher than storage predictions called for (around 101 bcf), and the market reacted with a drop of around 3% to $3.086 per MMBtu.
Domestic inventories are now at 2.686 trillion cubic feet, and current storage levels continue to increase the gap between the five-year average. The storage increase would have sent gas prices much lower, but the market is also being strongly affected by lower production levels across the country. Production of natural gas in the lower 48 states dropped slightly in June compared to May’s 109.7 bcfd.
EIA storage reports have been one of the biggest factors in recent weeks to drive gas prices, and while the current inventory held around 5% higher than the five-year average, that changed this week. This is why we are seeing such a sharp drop for gas rates in the LNG market.
Export Flows Dip As Global Prices Rise
Another area where the domestic market is changing is in export flows. Many export facilities shut down over the past couple months to allow seasonal maintenance to happen, but some of them started to open back up recently. U.S> LNG export flows dropped off in June, falling to 16.5 bcfd compared to May’s 17.1 bcfd. Exports are expected to increase in the near future, though, as facilities open up more fully and the U.S. producers step in to help struggling suppliers globally.
The ongoing conflict in Iran took a dark turn this week after President Donald Trump announced that he would likely attack Iran. He said on Wednesday the attacks could happen in the next few days, and on Thursday, he said that he may strike Iran by night. His conflagratory statements have spurred equally fiery comments from Iranian leadership, and the oil and gas markets are in a state of strong fluctuation at the moment.
Oil benchmarks moved upward on Thursday morning, with the West Texas intermediate climbing 1.14% to hit $91 per barrel. The Brent crude oil benchmark rose 0.77% to $93 per barrel as well.
Timothy St. John
Financial Writer – European & US Desks
www.fxleaders.com