EIA Reports Much Larger Than Expected Storage Withdrawal, Futures Soar
The head of the Energy Information Administration's weekly storage report said last Wednesday that there would be a close examination of last week's surprising announcement of a 49 Bcf net withdrawal of working gas from storage during the week ending Dec. 19. The withdrawal was much larger than anyone in the marketplace expected and exceeded the five-year average of storage withdrawals, triggering a massive $1.18 increase in the December futures contract on the day of expiration.
The large withdrawal occurred during a week with very mild temperatures and despite the massive difference between current cash prices and December futures, which created a compelling economic incentive to put gas into storage rather than take it out.
"But regardless of what we find, we wouldn't be providing any detail about the survey since it is conducted on a confidential basis, and we don't issue any unscheduled releases," Trapmann told NGI. "The revision policy is that we would put something out only with the regularly scheduled release, which would be 10:30 a.m. (EST) next Thursday and there is a threshold of 7 Bcf that would trigger [any revision]. But any information that we had [as of today] before the survey went out would be included in [today's storage report].
"We still have quite a substantial amount of gas in storage," he noted, referring to the 3,272 Bcf of working gas in storage, 263 Bcf more than the five-year average. "But the implied net change from last week was higher than the five-year average" net change for the week.
The storage withdrawal triggered substantial volatility in the futures market because the range of market expectations called for something between a 25 Bcf withdrawal to a 15 Bcf injection. The implied market forecast produced by ICAP's storage options auction Tuesday was a 15 Bcf withdrawal.
Furthermore, the 49 Bcf drop far exceeded last year's 1 Bcf withdrawal and outpaced the five-year average pull for the week of 37 Bcf.
"This seems to be an error," said Citigroup analyst Kyle Cooper, who had been expecting an 8-18 Bcf withdrawal. "However, a revision next week is considered possible."
Stephen Smith of Stephen Smith Energy Associates had predicted a 14 Bcf withdrawal but he noted that the seasonal average withdrawal from 1994 to 2003 was 52 Bcf.
IFR Energy Services' Tim Evans was predicting a 5-15 Bcf injection. He also speculated that the storage number might be incorrect. "What we don't know is where the gas went," Evan said. "Temperatures were warmer than they had been the week before, when only 6 Bcf in storage gas was used.
"The reliance on storage gas occurred in spite of cash prices that were generally at vast discounts to the futures market," he noted. "In short, the data doesn't make a great deal of logical sense and we're still waiting for a footnote from the DOE to explain whether there was a revision to prior totals or some kind of reclassification. Otherwise, it just looks like someone left the windows open and the furnace on."
If the report is accurate, it is a very bullish signal, Evans admitted. "However, we still have a hefty year on five-year surplus. Until we get an explanation, you don't know whether this report is some kind of larger ongoing shift that will just eat through storage at a faster clip than anticipated," or whether it is an anomaly.
Perhaps the most surprising thing about the storage number was the impact it had on the futures market. The December contract almost instantly jumped 45 cents after the report hit the street. It ended up expiring Wednesday at $7.976, up $1.183 from Tuesday's settle and up 86.1 cents up from the Friday Nov. 19 close. But the most amazing statistic is that December futures expired nearly $3 higher than current Henry Hub cash prices, an unprecedented separation between cash and futures prices entering December bidweek. Cash traders may want to fasten their seatbelts for this market convergence.