March natural gas futures stalled out for a second consecutive session on Wednesday as traders -- still wary from last week's storage surprise -- opted to wait for fresh data Thursday morning before choosing a price direction. Despite continued cold dominating the northern plains and Northeast, the prompt month traded between $7.630 and $7.890 on Wednesday before closing out at $7.709, up 9.3 cents on the day.
Natural gas futures also withstood a collapse in the crude futures ring Wednesday following a government inventory report that showed supplies are still at comfortable levels. Crude inventories were still nearly 10% above the five-year average following Wednesday's report, which revealed that supplies declined by 449,000 bbl last week to 324.5 million bbl. After peaking at $59.84/bbl on Wednesday morning, March crude dropped off to close at $57.71/bbl, down $1.17 on the day.
"On the liquids side we saw some 'buy the rumor and sell the fact' on the release of their inventory numbers, but natural gas futures are still hanging in there," said a Washington, DC-based broker. "We have really sort of stalled in this $7.40-7.50 to $8.00 trading range. The openings and the closes keep sticking right around this $7.60 to $7.70 level, but we keep seeing these 'tails' or 'wicks' when looking at candlestick charts. We have these big moves, but we can't settle towards the lower or upper ends of the range. As a result, the million-dollar question is whether this signals a consolidation before the next move higher, or are we running out of gas up here -- no pun intended."
The broker added that traders this week are taking a wait and see approach on inventory levels due to last week's odd report, which burned a lot of people when it revealed a withdrawal that was much smaller than most expectations. The Energy Information Administration (EIA) reported a "measly" 186 Bcf storage withdrawal for the week ending Jan. 26 (see Daily GPI, Feb. 2), stunning many market prognosticators who were looking for a draw closer to, or even greater than, 200 Bcf. Last week, the ICAP derivatives auction -- which is normally well within the ballpark of the actual report -- revealed a consensus withdrawal estimate of 215 Bcf.
"We had a very disappointing withdrawal number against the ICAP last week, so it will be interesting to see what shows up in Thursday's report for the week ended Feb. 2," she said. The broker noted that she is looking for a withdrawal between 221 to 231 Bcf. "What was interesting about trade on Wednesday is that we did not cave in with crude futures, so perhaps the natural gas bulls are holding on here to see what storage does," she said. "Once we see what the withdrawal number is, the futures market will take it from there."
With blustery cold temperatures in a number of high gas-demand regions last week, most withdrawal estimates for Thursday's storage report for the week ended Feb. 2 appear to be north of 200 Bcf. A 200+ Bcf withdrawal would be significantly larger than both last year's 46 Bcf pull and the five-year average draw of 148 Bcf. A Reuters survey of 22 industry players produced a range of withdrawal expectations from 198 Bcf to 240 Bcf with an average pull expectation of 218 Bcf. The ICAP storage options auction Wednesday revealed a 216 Bcf withdrawal expectation.
Golden, CO-based Bentek Energy said it is expecting a 214 Bcf withdrawal utilizing its Flow Model methodology and a 215 Bcf pull utilizing its Supply/Demand Balance methodology. A withdrawal of 214 Bcf would bring stocks 1% below the five-year high. Bentek's 214 Bcf withdrawal estimate counts on a 129 Bcf withdrawal in the East region, a 65 Bcf withdrawal in the Producing region and a 20 Bcf pull in the West region.
Top traders are not ruling out a further weather-driven advance in prices. "The stubbornness of the ongoing cold spell is keeping open the possibility of a larger than expected February storage withdrawal," said Jim Ritterbusch of Ritterbusch and Associates. He said the decline this month could be as much as 700 Bcf, which compares to last year's February withdrawal of less than 500 Bcf. "Although last week's storage draw wasn't far removed from average tendencies, we expect [Thursday's] data to reveal an unusually large decline of about 231 Bcf," Ritterbusch predicted.
Forecasts call for cold temperatures out to the middle of the month. MDA EarthSat of Rockville, MD, in its most recent six- to 10-day forecast calls for either below-normal or much below-normal temperatures for the Midwest and Mid-Atlantic states from Illinois to New Jersey. They caution, however, that confidence in the forecast is somewhat diminished due to possible storms. "A troughing pattern should continue to dominate most of the Midwest and East, which may last throughout the entire period. Models are depicting a cooler scenario in the regions compared to [Tuesday's] model runs as a storm system is projected to stay further south now around Day 8," EarthSat explained.
In the larger picture, Ritterbusch sees the market as trading within the upper 25% of a range that could remain intact during the next couple of months, but he is "not ruling out one more price rally of as much as 30-40 cents..."
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