By Dan Molinski

Natural gas prices are having a stellar year and the rally has continued this week as investors begin to worry that strong summertime demand and relatively low production might lead to a winter supply crunch, especially if there is more severe weather.

Total storage through last week stands at just 2.727 trillion cubic feet, a good 17% below the 3.269-tcf last year at this time, and 6% below the five-year-average of 2.912 tcf, according to the U.S. government agency EIA. That storage deficit is one of the main reasons why prices are 63% higher year-to-date. The front-month contract was recently trading 0.8% higher at $4.171/mmBtu, the highest level since late 2018.

For investors in the commodity, the question over the next several weeks will be whether storage levels approach what is deemed a very healthy, well-supplied 4 tcf when the so-called injection season ends Nov. 1, and winter withdrawal begins. After that date, EIA storage reports tend to notch weekly declines in inventories as homes and businesses turn on their gas-fired heaters, creating stronger demand.

Tom Seng, director of the Energy Economics school at the University of Tulsa, says it's unlikely supplies could reach 4 tcf this year. He says that with about 13 weeks left in the injection season, injections would have to average 98 bcf per week to get to 4.0 by Nov. 1, a tough task considering last week's injection was a tiny 13 bcf.

"I can't see this happening so, yes, that would be bullish for the rest of the injection season, as well as 'core' winter," Seng tells WSJ.

But that doesn't necessarily mean a frightening supply shortage is a real risk during the upcoming cold, winter months. The 10-year-average storage at the end of injection season is 3.73 tcf, and the five-year-average is 3.68, Seng says, and the market didn't run out of natural gas--far from it--during any of those years. "To meet the five-year average, it would take about 73 Bcf per week which, at this time, could be attainable. But, we are still injecting far less than this per week," Seng says.

Write to Dan Molinski at dan.molinski@wsj.com

(END) Dow Jones Newswires

08-06-21 1256ET