Natural gas differential continues to decline

Natural gas in storage appears to have resumed its downward move versus the 5-year average as compared to the bump last week. The Energy Information Administration reported earlier today that natural gas storage levels were 3,402 Bcf as of August 31 or about 28 Bcf greater than the previous week. The following chart shows the historic differential of natural gas storage levels versus the five-year average.

Storage build rates on the week compares to a 5-year average build rate of 63 Bcf for the last week of August. For all of August 2012, storage build rates have been nearly 89 Bcf below the 5-year average, which is impressive considering that August temperatures were not particularly oppressive. I continue to think that storage levels are ratcheting down due to high demand rates this summer and due to a reduction in production capacity, as natural gas prices remain below the marginal cost of shale gas operators. I continue to think the trend in current storage levels to the 5-year average will continue to decline and see natural gas storage levels equaling the five-year average later this year.