After much anticipation and speculation about the results of the Energy Information Administration's (EIA) revised storage reporting methodology, the small weekly storage injection of 37 Bcf ended up overshadowing the minor changes made to prior numbers Thursday. The net effect of the revisions was a 2 Bcf increase in working gas storage levels as of July 22.
Last week's net 37 Bcf injection fell slightly below industry expectations and significantly under historical comparisons. As a result, September natural gas futures were off to the races in Thursday morning trade. From a pre-report trading level of $8.30, the prompt month lurched higher on the new storage numbers. In the 19 minutes following the report, September natural gas was trading at a new contract high of $8.685.
However, the run-up would go no higher on the day. Instead, the prompt month slowly sold off in the afternoon, reaching as low as $8.44 before settling at $8.471, up 12 cents from Wednesday.
"The energy futures all finished with gains on the day, but the retreat from the mid-session peaks suggests that it was far from a one-way street, all the way around," said Tim Evans of IFR Energy Services. "The problem here is that the markets are already technically overbought to a considerable degree and in need of an ongoing diet of bullish news to sustain the pace of advance." Evans noted that it is not clear what Friday will bring, adding that "simple book squaring" ahead of the weekend may mean more selling than buying from the short-term trading sector of the market.
Bearish traders, who had hopes that Wednesday's trend-breaking session marked the end of the up-swing, were forced to come to terms with the realization that futures might still have a little higher to go.
The revised storage estimates based on the new methodology covered the six weeks from June 17 to July 22. The most significant changes made to previous numbers came during the week ended July 1, when overall working gas in storage was revised 13 Bcf higher than originally reported. However, revisions in the following weeks brought the net change to the most recent data up a mere 2 Bcf. Working gas levels for the week ending July 22 were revised to 2,383 Bcf from 2,381 Bcf. For the six week period, revisions in the East and West regions added gas to storage, while revisions to the Producing region pulled stocks lower.
In what could be considered "much ado about nothing," Evans said the revisions were "token" in nature. "A 2 Bcf revision is almost not worth revising the prior week's number for," Evans said. "You could make a case for lumping it into the weekly change and no one would be the wiser.
"The year-on-year number and the year-on-five year number were not distorted. The changes here are really subtle ones."
|EIA Working Gas Storage Revisions Under New Methodology (Bcf)*
|* The numbers shown represent net changes from the data previously reported by EIA. For the actual revised numbers go to http://tonto.eia.doe.gov/oog/info/ngs/history.html
The new system expands the sample of companies used for estimation from 56 to 63 and revises the approach used to estimate the volume of working gas in storage from the weekly sample data. The new estimation system also separates the reporting by salt cavern storage operators and non-salt cavern storage operators in the Producing region due to the operating differences.
"The new methodology changes the sample to reflect the fact that the pattern of storage injections and withdrawals of salt dome storage differs from conventional storage," said Ron Denhardt, vice president of Natural Gas Services for Strategic Energy & Economic Research Inc. "The revised methodology should improve the sample properties of the weekly storage data." As a comparison, Denhardt noted that for July 2004, the weekly storage data indicated working gas storage was 2387 Bcf and the monthly storage data was 2394 Bcf.
Commercial Brokerage Corp.'s Tom Saal said, "My understanding is that the new method is more rigorous than the prior method. Looks like higher injections got a little higher and lower injections got a little lower. Overall not much of a change in the big picture, so far."
The 37 Bcf report for the week ended July 29 was bullish when compared to industry expectations. A Reuters survey of 21 industry players expected natural gas stocks to rise by an average of 48 Bcf for the week, while the ICAP-Nymex storage options auction on Wednesday revealed a consensus forecast of a 43 Bcf injection. Last year's injection for the week was 81 Bcf and the five-year average build was 66 Bcf.
As for this week's report, Evans said the reported 37 Bcf injection was certainly supportive to the natural gas futures complex. "The problem I have with classifying anything as clearly bullish here is the fact that we are in a market that is more than $2.50 off of its May low, so the 37 Bcf report is bullish compared to say a 50 Bcf injection, but does it mean we have another easy 50 cents to a dollar here on the upside, that's a tougher call."
Following all of the revisions and the most recent report, working gas in storage now stands at 2,420 Bcf, according to EIA estimates. Stocks are now 52 Bcf higher than last year at this time and 170 Bcf above the five-year average of 2,250 Bcf. The East Region injected 38 Bcf for the week, while the West region chipped in 2 Bcf. The Producing region recorded a 3 Bcf withdrawal.
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