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NatGas Cash, Futures Part Company; November Sheds 6 Cents

Next-day physical gas gained ground in Thursday's trading as most traders elected to get deals done before the often volatility-inducing Energy Information Administration (EIA) storage report.

Gains were widespread, and the NGI National Spot Gas Average rose 7 cents to $2.38. Only a few points in the New York City area lost ground, although eastern points, on average, were up more than a quarter. Futures prices were driven by the EIA storage numbers, and the build of 100 Bcf was a bit more than traders were expecting. At the close, November had given up 6.5 cents to $2.453 and December was off 4.6 cents to $2.686. November crude oil fell 26 cents to $46.38/bbl.

The storage build expanded the surplus to last year's level as well as the five-year average, was a few billion cubic feet larger than the industry's consensus and put 2012's record storage level well within sight.

The day's greatest gainer proved to be Texas Eastern M-3, Delivery with a 29 cent rise to $1.52, and the biggest loss was incurred at Transco Zone 6 non New York North, serving southeastern-most Pennsylvania and southern, New Jersey with a slide of 7 cents to $2.33.

A few traders were caught off guard when the EIA announced inventory figures at 10:30. a.m. EDT. In the minutes prior, November natural gas futures were trading at $2.568, up a nickel from Wednesday's regular session close. However, in the minutes that immediately followed the release, the prompt-month contract dropped to $2.507, down 1.1 cents from the close. As of 11 a.m., the November contract was trading at $2.496, down 2.2 cents from Wednesday.

Prior to the release of the data the consensus was centered around a low to mid 90 Bcf figure. Stephen Smith Energy calculated a build of 89 Bcf, and Ritterbusch and Associates was looking for an addition of 95 Bcf. A Reuters survey of 29 traders and analysts showed a sample average of 93 Bcf with a range of 86 to 104 Bcf. The actual injection was larger than both last year's 96 Bcf build and the five-year average injection of 87 Bcf.

Citi Futures Perspective analyst Tim Evans, despite being on the record with a 104 Bcf build prediction, deemed the 100 Bcf injection as "bearish," and more than expected. "The 100 Bcf build in U.S. natural gas storage for last week was a bearish surprise relative to consensus expectations for 91-93 Bcf in net injections," he said. "It was still slightly below our model's 104-Bcf estimate however, and so mildly constructive in terms of where we would peg the background supply-demand balance. The reaction to the news sets technical resistance at today's high."

Analysts recognize the potentially bearish implications for the large inventory build, but Evans sees the market as "conservatively valued and oversold, which should limit the downside and could translate into a short-covering rally on any early heating season cold."

As of Oct. 9, working gas in storage stands at 3,733 Bcf, which is 447 Bcf higher than last year at this time and 168 Bcf above the five-year average of 3,565 Bcf, according to EIA estimates. For the week, the East Region deposited 51 Bcf and the Producing Region added 38 Bcf, while the West Region chipped in 11 Bcf.

At 3,733 Bcf, current storage levels are already 122 Bcf above last year's injection season high of 3,611 Bcf, while just 196 Bcf below the all-time record storage level of 3,929 Bcf, which was set for the week ending Nov. 2, 2012. With at least three or four more injections expected this season based off of historical injection cycles, 2015 storage levels are likely to eclipse the 2012 record high and threaten the mythical 4 Tcf mark.

Recent historical patterns for natural gas futures suggest a late-October market bottom, say market technicians. According to Brian LaRose, a market analyst with United ICAP, "natural gas has been able to carve out a bottom into late October in each of the last two years. In 2013, natgas rallied from a low $3.379 to a high of $6.493, a gain of 92%. In 2014, natural gas rallied from a low of $3.541 to a high of $4.544, a gain of only 28% (thanks, OPEC). As long as natgas can hold $4.385, bulls will have a case for a seasonal rally in 2015," he said in closing comments Wednesday.

Any seasonal rally will be facing strong headwinds in the form of ample, if not burdensome, inventories made even greater by Thursday's outsize storage build. In addition, traders are likely to face the prospects of a load-killing El Nino, which could temper normally stout seasonal demand.

Near-term weather forecasts are calling for some early season cooling to make its way into the Great Lakes and Upper Midwest, and "we did buy some gas on Consumers today thinking that usage is going to increase," said a Michigan marketer.

"I certainly hope that is the case for some of our customers are looking a little over full. Hopefully, we can shift gas around between customers to get everyone in line with the amount of gas they should have. There are just a lot of things to be aware of. This is an injection month and Consumers and Michigan Consolidated limit the amount of gas you can inject."

Gas in the Great Lakes was about a nickel higher. Deliveries to Alliance gained 6 cents to $2.56, and gas at the Chicago Citygates added a nickel to $2.55. Parcels on Consumers came in a nickel higher also at $2.63, and deliveries to Michigan Consolidated gained a penny to $2.58.

AccuWeather.com forecast that the high Thursday in Chicago of 66 would plunge to 52 Friday and sink to 50 on Saturday. The seasonal high in the Windy City is 63. Detroit's Friday maximum of 63 was seen sliding to 55 Friday and 48 by Saturday, 14 degrees below normal.

Market hubs also firmed. Gas at the Algonquin Citygate gained 11 cents to $2.94, and parcels at the Henry Hub rose a nickel to $2.49. Gas at Opal managed a 3 cent gain to $2.39, and deliveries to PG&E Citygate changed hands 2 cents higher at $3.04.

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