Even though the 259 Bcf storage withdrawal last week failed to match the all-time record weekly withdrawal by a mere 1 Bcf, March natural gas futures failed to rally Thursday after the EIA storage report. Instead, the prompt-month traded in a $7.050 to $7.300 range before settling at $7.292, up 5.1 cents from Wednesday.
Some experts called the gargantuan withdrawal a case of "too little too late." The withdrawal reported by the Energy Information Administration (EIA) for the week ended Feb. 9 had the opposite impact of what normally would be expected when enormous demand reduces supply at a near-record pace. After trading at $7.195 just prior to the report, the prompt month dropped to a low of $7.050 in the immediate minutes that followed.
Jay Levine, a broker with enerjay LLC, said that while the 259 Bcf withdrawal narrowly missed the all-time new record "the market was fully expecting a large withdrawal and, as importantly, will be focusing on the next few reports as well. That doesn't mean the complex isn't susceptible to selling off...but it does mean...the downside should be somewhat limited as weather forecasts and reality, along with geopolitical high-jinx, continue to rank right up there and 'battle it out' with existing fundamentals, which might not be as bearish as the market has been anticipating."
"We dropped to $7.050 on the storage number and it looks like we picked up some support down there," said Steve Blair, a broker with Rafferty Technical Research in New York. "We have had major support down at $7.000 for a while now, which we approached following the storage report, but frankly I don't know why.
"Last week when we had the 224 Bcf withdrawal, the initial reaction was up, but then the market got smashed to the downside," he added. "This week we have a withdrawal that was one billion cubic feet below the record withdrawal, and I understand the market was looking for something like that, but the market's reaction was to immediately go lower. One explanation for the knee-jerk lower could be that it was too little too late, especially with a lot of the weather forecasters talking about warmer weather for March.
"Because we are so late in the season, traders could be writing it off as being too late to have any real impact on the market. Even if we have another week or two of 200+ Bcf withdrawals, we are still going to end the withdrawal season at the end of March with healthy storage supplies. Maybe the market has been telling us that all week long, because there had been no real futures price run-up even with the large withdrawal expectations."
Blair said he expects the market to bounce around a little now. Because of the support test, the broker said a resistance test could be next. "We have some minor resistance numbers up around $7.450, which we tested twice already this week," he said. "I think we will probably test that out again, but I think this market may stay a little range-bound until this March contract expires."
While some people within the industry had been looking for a withdrawal as high as 275 Bcf, one industry veteran noted that reaching that level might not be physically possible. "In talking to a number of people on Wednesday who trade the physical market, they said the maximum amount of gas that could be physically pulled from storage within a week's period of time is 265 Bcf...and that's with the pipes wide open," said one New York broker. "It seemed kind of strange that some people were looking for a 270-275 number."
The 259 Bcf withdrawal dwarfed last year's 92 Bcf withdrawal and the five-year average withdrawal of 149 Bcf. However, most of the industry had been expecting such a pull. A Reuters survey of 24 industry players produced an average estimate of a 252 Bcf withdrawal while the ICAP storage options auction Wednesday, which now runs from 3:00-3:20 p.m. EST instead of 3:00-4:00 p.m. EST, revealed a 260 Bcf withdrawal expectation.
As of Dec. 9, working gas in storage stood at 2,088 Bcf, according to EIA estimates. The most recent withdrawal dropped current stocks to 193 Bcf less than last year at this time, but storage still remains 268 Bcf above the five-year average of 1,820 Bcf. The frigid East region removed 179 Bcf for the week while the Producing and West regions withdrew 68 Bcf and 12 Bcf, respectively.
Even prior to the storage report, some market technicians were not convinced of the likelihood of any price rally in the near-term. "To have any case the bulls need a decisive close above $7.840 from here as the 0.7862 retracement of the $8.035 to $7.125 decline," Walter Zimmerman of United Energy said prior to Thursday's trade.
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