The natural gas market shot up 8% yesterday after the Energy Information Administration announced a leaner storage build than expected. As seen below, the inventory build of just +17 bcf was far below the 5-year average and even below the build for the same week in 2012. 

Though this number was only around 7-8 bcf below the consensus, and only 6 bcf below our estimate of 23 bcf, the market shot higher and continued rallying through the day. Presumably, rounds of short-covering helped as in the previous week we observed money manager short positions again tick up, as noted in our Detailed Weekly Update on Monday. 

That number helped prices move right up to our final resistance before we would expect a re-test of highs right around the $3 level. As of noon today, prices are lingering right around that same level again, presumably awaiting afternoon weather model guidance before determining how to trend into the weekend. 

Meanwhile, over the past week the Energy Information Administration announced yesterday that they saw supply grow once again thanks primarily to an increase in Canadian natural gas imports, something that would seem quite bearish for the market. 

However, demand spiked 3.3 bcf/d week-over-week this past week, thanks entirely to an increase in power burns. These burns were aided by significantly warmer temperatures across everywhere from the Midwest to the South and the East. This heat was seen as the main region that the EIA data missed bullish yesterday; analysts missed just how sensitive to this hot weather natural gas demand would be. This also entirely canceled out the small increase in imports we saw, though some of that import increase may be reflected in the data next week as well. 

Attention has been shifting towards what we should expect for the month of August weather-wise. The Climate Prediction Center has been consistently expecting temperatures to be above average, something the market appears to be expecting as well with prices back above $2.8. 

This heat is likely necessary to stabilize prices through the month. Over the past 5 years, August has been one of the seasonally weakest months for natural gas prices (on par with December) as cooling demand typically falls off through the month. Seeing the bullish EIA data miss being driven entirely by power burn should be an indication of high weather sensitivity; this could increase the odds of a trend towards this seasonality through the month. 

Seeing the potential for strong sensitivity to weather moving through the month, we at Bespoke Weather continue to update clients based on where exactly the hottest and coolest risks exist on August, and overlay that with seasonal demand trends in natural gas. Just today we re-calibrated our models for the month of August. In doing so, we noticed some interesting trends; in the past few years we have seen shares of natural gas demand increase in areas of the Mid Atlantic where coal generation has switched over to favor more natural gas demand, while shares of demand in more southern areas have fallen off a bit. 

Of course, these are just a few of the states to watch through August, but in 2015 they accounted for around 52% of national demand. Similarly, for clients we break down how natural gas demand has shifted across census regions, overlaying that with our NWS 7-Day PWCDD/PWHDD analyzer and longer-range forecasts that show demand forecasts across the country. There were a few trends to take away from all this, however, one of which is that added attention will likely be needed for PJM fuel mix/electrical generation, as the trend has been for increasing natural gas demand in many associated states the past few years. With more steady heat in that region, we may be able to see power burns remained elevated enough to support natural gas prices or maybe even rally us further (towards a test of $3); should cooling demand begin to fall off in that region, we could see a rather rapid negative price reaction (especially with cash prices not responding as positively to recent heat). It should all shape up for an exciting August indeed.