Despite digesting their third consecutive 200 Bcf-plus natural gas storage withdrawal, March natural gas futures traders on Thursday morning were not in a reactive mood. After trading between $7.550 and $7.750, the prompt month ended up closing at $7.727, up 8.1 cents on the day.
Futures dipped to a $7.550 low in morning trade and rose to $7.630 just minutes after the Energy Information Administration (EIA) reported that 223 Bcf was removed from underground storage for the week ended Feb. 16.
"While the report did mark our third significant withdrawal in a row, I think the market absorbed it. The number was right in line with expectations," said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. "As for the futures market, I really think it is a case of here we go again. I think we are in a trading range between $7 and $8 and the only thing left to deal with for the rest of the season is what kind of weather March has to give us and whether or not we will continue to whittle down the year-over-five-year-average storage surplus."
In addition to keeping tabs on the storage surplus over the five-year average, Saal said March will also bring summer weather forecasts and hurricane season outlooks, which together will act as the market's next price-directional indicator. "People will start looking for a variety of factors that could influence prices this summer," he said.
Dealing with the current trading range, Saal advises clients to utilize an options strategy. "When the market is trading in a range, the volatility in the market normally starts to dampen. In this case, we like to employ options strategies," the broker said. "When volatility is on the low end of the scale, premiums are lower...making options more attractive for use as a hedge. When the market ends up breaking out of the range, that next move could be explosive. The options act like price insurance."
Even prior to the third gargantuan draw on supplies, some analysts were less than convinced that it would be a market-moving moment. Ritterbusch and Associates Jim Ritterbusch said Thursday morning that another 200 Bcf-plus withdrawal could easily be overshadowed by updates to the noon weather models or a sharp upswing in oil values.
"While our ideas for a [natural gas futures] price band during the upcoming March through May period would approximate $6.90 to about $8.35, we will be viewing trends in the petroleum complex as a key input," Ritterbusch said. April crude put in a high of $61.25/bbl in Thursday's session before settling the day at $60.95/bbl, up 88 cents from Wednesday.
The 223 Bcf withdrawal from storage was significantly larger than last year's 120 Bcf pull as well as the five-year average withdrawal of 137 Bcf. While a Reuters survey of 22 industry players hit the nail on the head, most industry estimates were looking for a 228-229 Bcf withdrawal. A Bloomberg poll of 18 analysts revealed a median estimate of 225 Bcf with a range of 216 to 233 Bcf. The ICAP storage options auction Wednesday produced an expectation of 229 Bcf, while Golden, CO-based Bentek Energy's Flow Model also was looking for a 229 Bcf pull.
As of Feb. 16, working gas in storage stood at 1,865 Bcf, according to EIA estimates. Stocks were 296 Bcf less than the same time last year but 182 Bcf above the five-year average of 1,683 Bcf. The East region withdrew 151 Bcf, while the Producing region pulled 60 Bcf and the West region withdrew 12 Bcf.
As far as weather forecasts go, early March outlooks appear to be favoring some cooling temperatures moving into the Northeast, Mid-Atlantic and Northwest. According to the National Weather Service's eight-to-14-day forecast covering March 2-8, the Northeast, Northwest and much of the Mid-Atlantic are expected to see a return of below normal temperatures, while the Southeast and south central regions will experience above normal readings.
Likewise, MDA EarthSat in its Thursday morning forecast for the 11-to-15-day period showed below normal temperatures for the eastern Midwest and Eastern Seaboard. It cites storm activity in the six-to-10-day period as the primary factor, but notes "the bigger area of cooling from the North Central to Northwestern states and up into Canada is tied to an intention by most models to building ridging toward western Alaska." This would provide a mechanism to bring cold air currently trapped in the Yukon and Northwest Territories south, the forecaster said.
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