Natural gas for delivery Friday continued its trek lower in Thursday's trading as most traders looked at unsupportive weather and a lackluster power pricing regime and saw little need for additional volumes.
Overall, the market fell 5 cents to $2.24. Most traders elect to get their cash deals done before Thursday's Energy Information Administration (EIA) storage report, and the EIA reported a much bigger than expected 132 Bcf injection. Prices promptly tumbled but recovered quickly, giving futures a small loss on the day. At the close, July was down 0.8 cent to $2.626 and August fell by 0.9 cent to $2.654. July crude oil skidded $1.64 to $58.00/bbl.
Traders saw the day's action in the futures market as reflective of previous sellers seeking to take advantage of an opportunity to buy back their positions and book gains. "Previous shorts in the market used the number to cover, and subsequent sellers thinking the market would fall further had to buy back their positions when they realized the impact of the number wasn't forcing prices lower as they expected," said a Florida trader.
"Some gas is locked away where there is no infrastructure whatsoever, but we still have summer coming in and bringing its demand for electrical generation along with the shut-down of coal plants. All these factors are a little bit supportive."
Prices rebounded quickly once the number hit trading screens. July futures fell to a low of $2.556, but by 10:45 a.m. July was trading at $2.618, down just 1.6 cents from Wednesday's settlement.
Prior to the release of the data analysts were looking for an increase closer to the 125 Bcf range. ICAP Energy had calculated a 126 Bcf increase, and Bentek Energy was looking for a build of 125 Bcf. A Reuters poll of 25 traders and analysts showed an average 121 Bcf with a range of a 101 Bcf to a 130 Bcf injection.
"I was hearing a 121 number and one guy showed me a 129 Bcf figure, but I don't think anyone was thinking this big," a New York floor trader told NGI. "Immediately we got down to $2.556, but it bounced back 2.5 cents immediately. If you blinked you would have missed it. $2.50 is going to be a big number here."
Tim Evans of Citi Futures Perspective said, "This was the second consecutive bearish weekly surprise, which tends to reinforce the idea that the background supply-demand balance has weakened from where it was just a few weeks ago. This has bearish implications for the data to follow, although it's worth noting that today's warmer temperature forecast will blunt some of that impact."
Estimating storage during a holiday week such as Memorial Day has always presented analysts with a challenge inasmuch as it is often difficult to ascertain the balance between demand and gas bound for storage. Bentek Energy noted just such a dilemma and admitted that there was upside risk to its estimate of 125 Bcf. Bentek said the last five years have exhibited this trend, with the actual EIA figure surpassing Bentek's estimate. Indeed. Make that six.
Inventories now stand at 2,211 Bcf and are 751 Bcf greater than last year and 22 Bcf greater than the five-year average. In the East Region 73 Bcf was injected and the West Region saw inventories increase by 14 Bcf. Stocks in the Producing Region grew by 45 Bcf.
In the physical market gas for delivery to Midwest points slumped as Friday temperatures were forecast to drop close to 20 degrees to levels about 10 degrees below normal. Forecaster Wunderground.com said the high Thursday in Milwaukee of 78 was expected to drop to 62 Friday before recovering somewhat to 65 Saturday. The normal high in Milwaukee is 72 this time of year. Chicago's Thursday high of 81 was seen plunging to 62 Friday and making it back to 67 Saturday. The normal high in Chicago in early June is 76.
Gas for delivery on Alliance shed 4 cents to $2.55, and packages delivered to the Chicago Citygate fell 4 cents to $2.54. Gas on Consumers changed hands 3 cents lower at $2.68, and deliveries to Michcon were seen 4 cents lower at $2.66. Gas at Demarcation changed hands at $2.45, down 3 cents.
Western points dropped as well. Gas at Malin fell 7 cents to $2.40, and deliveries to PG&E Citygate fell 4 cents to $2.94. At the SoCal Citygate, Friday parcels came in 4 cents lower at $2.64, and gas at the SoCal Border was seen a nickel down at $2.49. Gas on El Paso S Mainline fell 5 cents to $2.49.
Gas buyers across PJM seeking to procure supplies for power generation may have their work cut out for them as little help can be expected from wind generation. WSI Corp. in a morning forecast said, "Light and variable wind generation is expected into the weekend. Output may occasionally top out in excess of 1 GW, [and] the expected frontal system may provide a boost to wind gen during Sunday into Monday.
WSI predicts that "a slow-moving and complex storm system along and off the East Coast will continue to promote mostly cloudy skies, occasional light rain, drizzle and a northeast flow across the Mid Atlantic during the next one to two days. This will lead to below-average temperatures with highs in the 60s and 70s. Partly cloudy skies and seasonable conditions are expected across western PJM. Eventually, a weak cold front may slide across the power pool late."