August natural gas posted a new six-month low in overnight trading and is expected to open 4 cents lower Thursday morning at $4.08 before the release of a government report that is expected to show a sharp contraction in the storage deficit. Overnight oil markets were mixed.
Overnight August traded as low as $4.069, a new low for the current price slide.
If estimates are correct, the year-on-year and year-on-five-year storage deficits are likely to undergo significant shrinkage following the release of storage data from the Energy Information Administration at 10:30 a.m. EDT. Industry pundits are by and large undecided about what a proper ending inventory is, but last year only 62 Bcf was injected, and the five-year average is for a 65 Bcf increase. This time around a more rapid refill is expected.
Analysts at IAF Advisors in Houston calculate a 103 Bcf injection, and at United ICAP they are expecting a 100 Bcf build. A Reuters survey of 26 traders and analysts revealed an average 98 Bcf with a range of 86 Bcf to 107 Bcf.
Bentek Energy is looking for a build of 102 Bcf but concedes risk to the forecast lies in the July 4 weekend. "The holiday weekend affected both Bentek's sample of storage facilities as well as the fundamental estimates for the week, with total U.S. demand dropping 1.3 Bcf/d from the previous week while total sample injections increased across the U.S. by a combined 9 Bcf week-over-week.
"The risk to this week's forecast is associated with the July 4 holiday weekend, which Bentek modeled into this week's forecast. However, the impact could be greater than the effect Bentek assumed for the week. During the same week last year, Bentek overestimated the Producing Region's injection by 7 Bcf, suggesting the holiday effect was potentially muted during the week. However, population-weighted average temperatures within Texas were 2 degrees higher a year ago than this year, which pulled power burn demand down nearly 0.8 Bcf/d within the state from a year ago, likely allowing for significantly stronger injections."
Tim Evans of Citi Futures Perspective forecasts an increase of 99 Bcf, and utilizing his data the five-year storage deficit shrinks from its present 769 Bcf to 620 Bcf by Aug. 1. "While prices have already fallen to levels that represent a more conservative valuation, this declining deficit still represents a bearish fundamental pressure on the market that could drive some further long liquidation over the next few weeks in our estimation."
In overnight Globex trading August crude oil rose $1.47 to $102.67/bbl and August RBOB gasoline shed a penny to $2.8722/gal.