July natural gas is expected to open unchanged Thursday morning at $4.62 as traders anticipate a storage build report well above seasonal norms. Overnight oil markets rose.
Lower demand seems to be the driving factor behind this week's plethora of storage estimates well past the century mark. Bentek Energy said, "Total demand fell from the previous week by nearly 1.0 Bcf/d, which was driven by a 1.7 Bcf/d drop in power burn demand, which averaged 19.8 Bcf/d during the week."
That drop in power burn is central to Bentek's estimate of a 111 Bcf storage build for the week ended May 23. "The drop in power burn demand gives a good indication of the high-side risk to this week's forecast. [Our] sample of storage activity also supports a stronger build week-over-week, with the West and Producing regions reporting stronger injections from the previous week while the East reported weaker injections," the company said.
"Although [our] sample of injections increased week-over-week and came in significantly above the same period last year, the sample build did not increase as significantly as the drop in demand would have suggested, giving the low-side risk to the forecast, which is centered in the East region because of the weaker injections."
Others are in the same camp as Bentek with 100-plus Bcf estimates. A Reuters survey of 24 traders and analysts revealed a 110 Bcf sample average with a range from 100 Bcf to 115 Bcf. Estimates are tightly bunched. United ICAP estimates an increase of 113 Bcf and Ritterbusch and Associates calculates a 115 Bcf injection. Last year, 88 Bcf was injected and the five-year average is 93 Bcf.
Going forward, weather forecasts aren't giving much indication the series of triple-digit storage builds is likely to be interrupted any time soon. In its morning outlook WSI Corp. says the "six-10 day period forecast is now colder across the Plains and Great Lakes region whereas warmer over the mid-Atlantic States in through portions of the Northeast. Forecast confidence is considered near average at best as models show fair agreement but with increased uncertainty.
"Risk is to the colder side over the Northern Plains in through the upper-Midwest if a progressive cold trough is stronger than anticipated. There are colder risks over PJM in through the mid-Atlantic States late in the period as well if the latest model guidance solutions are too slow with progressing the overall large-scale pattern.
"Colder' is relative. WSI predicts that over the next 11 days the high in Baltimore will be a maximum of 84, while the norm is 79. Lows are seen dropping to 53, while the norm is 58. Pittsburgh is forecast to see an 11-day high of 82, while the norm is 76. The low for that period is 53, while a normal low is 55.
Market technicians are watching intently as at current levels the market could be poised to resume a downward trek or if certain parameters are breached continue advancing. "With natgas reaching $4.635-4.679 (a=c from $4.289) we are watching intently for signs of peaking action," said United ICAP's Brian LaRose in closing comments Wednesday to clients. "Turn lower from this vicinity and we will have a case for a completed ABC bear market correction and a resumption of the down trend. Fail to reverse and the A=C objectives from $4.221 will be our next upside targets. "a"="c" targets $4.920-5.089. 1.618 "a"="c" is up at $5.310-5.357.
In overnight Globex trading July crude oil gained 6 cents to $102.78/bbl and July RBOB gasoline rose a penny to $3.0001/gal.