May natural gas futures staged a healthy late-session rally Thursday to close in positive territory after surviving what could have been a damaging blow to the bullish cause after the release of government inventory data. At the end of the day May futures were 3.4 cents higher at $4.389 and June rose 3.2 cents to settle at $4.458. May crude oil vaulted $2.45 to $106.72/bbl.
The stage was set for a volatile session as estimates of the weekly inventory report varied widely. With spring being a transitional season, weather forecasting can become a challenge along with predicting natural gas demand. Estimates of the report for the week ended March 25 were highly variable, ranging from builds as high as 15 Bcf to a draw as deep as 24 Bcf, according to a Reuters survey. The Reuters poll had an average 1 Bcf pull, and industry consultant Bentek Energy calculated a 10 Bcf build using its North American flow model.
The 10:30 a.m. EDT release of the data caught a number of traders off guard. The Energy Information Administration reported the first build of the season, 12 Bcf, well above the Reuters survey consensus and other estimates.
"We were looking for a number anywhere from minus 1 Bcf to plus 10 Bcf, so it came in a little higher than expected. We were also thinking we would see some higher numbers [prices] today to begin with and the market would test the $4.40 level and above," said a New York floor trader.
The trader was not fazed by the immediate price plunge. "I'm thinking you need to buy this somewhere in here. The inventory numbers are likely to be in the plus territory going forward anyway and we have a snowstorm forecast for [Friday]. Go figure," he said.
Other traders took the figure in stride as well. "We like the market on any sell-off. We think prices will test the $4.50 area and then $4.85," said Ed Kennedy, vice president at Hencorp Futures in Miami.
He added that "basically we are just range trading for the time being. Anyone who wants to sell thinking the market will trade down to the $4.20s is on a fool's errand. I didn't think the number was all that bearish. It was above expectations."
Kennedy sees economic factors out of alignment should prices venture below $4. "If you put a $3 in front of this market, guess what, you are below the cost of production."
Others saw a market looking ahead to next week's inventory report. "The first injection of this season was about a dozen Bcf above average street ideas and kept storage within about a dozen Bcf of year-ago levels," noted Jim Ritterbusch of Ritterbusch and Associates. Ritterbusch is looking for "this deficit to expand appreciably during the next two to three weeks.
The strong possibility of a withdrawal in next week's storage report likely contributed to the late session recovery into the plus column. In any event, [Thursday's] wide swinging market provided a microcosm of what lies ahead in our view as gyrations between the $4.00 and $4.65 area remain as the order of the day."
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