December natural gas futures quietly crept higher Wednesday as reports circulated that the industry could see an early withdrawal from natural gas storage when the Energy Information Administration (EIA) releases its report Thursday morning for the week ended Oct. 27. The prompt month ended up settling 17.8 cents higher at $7.712.
Withdrawal or not, short-term weather forecasts are currently holding more weight. "We would emphasize that any significant shifts in the weather forecasts could easily outweigh the supportive storage data that currently appears well discounted," said Jim Ritterbusch of Ritterbusch and Associates.
While temperatures remained warm from Boston to New York and Washington due to "a weak wave of low pressure developing along the [cold] front in the Tennessee Valley, AccuWeather meteorologist Bob Tarr said the front would ultimately pass, dropping temperatures 10 to 15 degrees on Thursday.
Longer-term weather conditions favor the bears. The National Weather Service in its eight-to-14 day outlook shows above normal temperatures for the entire area east of a line extending from western North Dakota to West Texas. West of the Continental Divide to the Pacific Ocean is forecast to be below normal.
Evans said warmer temperatures next week could leave room to the downside. "With temperatures to turn warmer next week and the new pattern having some potential to take hold for the intermediate term, we see the market poised to trend lower, with the focus shifting somewhat away from the week-to-week change in the year-on-five-year storage surplus to the high absolute level of storage itself.
"As of October 20 storage was 3,461 Bcf, quite near its 3,478 Bcf all-time peak from November 1990. The winter may be cooler than last year, but there's 10.6% more inventory as a cushion and far more gas flowing in the Gulf of Mexico than a year ago."
Ritterbusch is cautious and sees great uncertainty until the longer term weather picture comes into clearer focus. "While we lean toward the bearish side, we would suggest selectivity in establishing fresh short positions and would await rallies back to above the $7.70 area before approaching the short side," he said in a note to clients.
Others are less cautious. Phil Flynn of Alaron is long December natural gas "from approximately $7.10" and says to leave a protective stop loss order at $6.80.
Early estimates of Thursday's supply figures hint at the first withdrawal of the season. Analysts at Strategic Energy & Economic Research are expecting a withdrawal of 9 Bcf, while a Reuters survey of 24 industry players expects an average withdrawal of 4 Bcf.
Golden, CO-based Bentek Energy sees a double-digit withdrawal. "Two or three weeks prior to the expected turn of storage facilities from injection to withdrawal season, it has happened," Bentek said. "For the week of October 21-27, Bentek projects a storage withdrawal of 13 Bcf, resulting in stocks of 3,448 Bcf. This level remains 8.6% above the five-year average and 4.7% over the five-year high." The company sees an 8 Bcf withdrawal from the East region and a 5 Bcf withdrawal in the Producing region. The West region is expected to remain unchanged.
Any type of withdrawal seen Thursday would be bullish when compared to historical data. Last year saw a 36 Bcf injection for the week and the five-year average is an injection of 30 Bcf.
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