Putting to rest the heated withdrawal/injection debate of the past week, the Energy Information Administration (EIA) confirmed Thursday morning that storage reverted to net injections for the week ended Nov. 10 with a build of 5 Bcf. As a result, December natural gas sunk lower, putting in a low of $7.720 before settling at $7.755, down 36.5 cents from Wednesday.
Following the report, which was released nine minutes late at 10:39 a.m. EST, December natural gas futures dropped significantly. Just prior to the report, the prompt month was trading at $8.120. Immediately following its release, December natural gas sank lower, recording a $7.850 trade as of 10:49 a.m. After a run-up to $7.950 in the afternoon, the contract sank lower to close.
Recent cool weather in the Midwest and Northeast had put a damper on storage injections with the two prior reports revealing withdrawals of 9 Bcf and 7 Bcf. Although the current level of 3,450 Bcf is still short of the record 3,472 Bcf level reached in November 1990, supplies are still more than ample by current industry standards.
"I wasn't surprised by the injection because we had fairly mild weather in a number of regions of the country last week," said Steve Blair, a broker with Rafferty Technical Research in New York. "I have been hearing expectations from flat to plus 11 Bcf, so this 5 Bcf injection came in pretty much in the middle of expectations. It really wasn't surprising that the market took a shot downwards on it because we got what we expected, which is an injection during the first week of the withdrawal season."
In addition, Blair noted that the market has proven it has trouble with the $8 level. "Interestingly enough, Wednesday was the first close above $8, even though we had broken above it six times in the last two weeks," he said. "I definitely see future battles with this $8 level. Now we are getting into minor support down around $7.900 and $7.800 with more minor support zones down to the $7.600 area. I don't know if we are going to get through all of the minor supports. If we get down to between $7.600 and $7.700, I think that will be as far as we go."
Jay Levine, a broker with enerjay LLC, agreed that the injection came as no surprise. "A 5 Bcf injection is certainly within the guidelines of what the market was expecting, even if it took the EIA a full extra five minutes to release it, thus keeping all of us on pins and needles," Levine said. "As always and particularly since [natural gas futures] has already had a nice run -- which isn't to say it's all over, as eyes focus on winter -- and immediately following this or any report, I'd give the market some time to flush itself out...[so] keep any buys/sells a little extra wide."
Prior to Thursday's session, the recent advances in natural gas futures may have been the work of updated winter weather forecasts. AccuWeather meteorologist Joe Bastardi is anticipating only a modest El Nino impact with cooler than normal temperatures from southern New Jersey to Florida, a view that was supported Wednesday in AccuWeather's winter forecast update. "It is highly unlikely this El Nino goes anywhere beyond a moderate one and may start breaking down in the middle of the winter," he said in his initial October forecast.
However, the National Oceanic and Atmospheric Administration (NOAA) said Thursday that it is still calling for a warmer than normal winter across the country (see related story).
Leading up to the storage report, industry expectations ranged between a draw of 8 Bcf and a build of 35 Bcf, according to a Reuters survey of 24 industry players. That same survey centered on an injection of 8 Bcf, while the ICAP derivatives auction held Wednesday afternoon showed a consensus 1.5 Bcf withdrawal. Golden, CO-based Bentek Energy projected that there would be no net change in working gas levels. The company had predicted that an 11 Bcf withdrawal in the East region would be erased by a 6 Bcf injection in the Producing region and a 5 Bcf addition in the West region.
The actual 5 Bcf injection paled in comparison to last year's 54 Bcf injection and was just under the five-year average build of 13 Bcf.
As of Nov. 10, working gas in storage stood at 3,450 Bcf, according to EIA estimates. Stocks are still 176 Bcf higher than last year at this time and 238 Bcf above the five-year average of 3,212 Bcf. The East region withdrew 4 Bcf for the week while the West and Producing regions injected 4 Bcf and 5 Bcf, respectively.
Because of the forthcoming Thanksgiving holiday, the EIA announced that the storage report for the week ending Nov. 17 will be released on Wednesday, Nov. 22 between 12:00 p.m. and 12:10 p.m. EST.
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