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Analysts Try to Correct Last Week’s Errors; September Virtually Flat
September natural gas inched higher Wednesday as traders noted a less supportive weather environment, but they were reluctant to initiate any new positions prior to the release of a key government inventory report Thursday. At the close September was up 0.1 cent to $3.933 and October had added 0.1 cent to $3.943. September crude oil rose 93 cents to $87.58/bbl.
Systematic traders utilizing trend-following techniques see no opportunities at present. “I’m totally neutral on the natural gas market,” said an Oklahoma City trader. He admitted that his model was closer to a “sell” signal than a “buy” and if the October contract were to fall to about “$3.80 or so, that would generate some sell interest.”
Selling interest may be realized with Thursday’s release of Energy Information Administration (EIA) storage data. Reports in recent weeks have been significantly off the mark and have made for healthy short-term trading opportunities immediately following the 10:30 a.m. EDT release of the figures.
Tim Evans of Citi Futures Perspective expects a build of 46 Bcf Thursday, but heand other forecasters will be trying to improve upon last week’s huge miss. Consensus estimates last week swirled around 36 Bcf, and John Sodergreen, publisher of Energy Metro Desk, said, “Last week’s 25 Bcf build was a showstopper, and not in a good way. The best and the brightest forecasters out there missed this LowBaller EIA report by roughly 8-10 Bcf.
“How’s that possible? Well, in forecasting, anything is possible we reckon, but it’s not very likely in any case. By and large, the Producing region is once again causing all the trouble. [Industry consultant] Bentek [Energy] and just about everybody else nailed the expected builds in the East and West with little trouble.”
Last year for the week a mere 28 Bcf was injected and the five-year average is a more robust 43 Bcf. Estimates for the week ended Aug. 12, are at the higher end of the historical range. In addition to the Citi estimate of 46 Bcf, Ritterbusch and Associates is also looking for an increase of 46 Bcf. Bentek, utilizing its North American flow model, is expecting a build of 43 Bcf.
Bentek said it thought that there was equal risk to a higher or lower forecast. “Last week’s big miss leads to some uncertainty on EIA’s forecast. Based on historical behavior between EIA and Bentek’s model, following a bias period, both models coincide again when more normal demand returns to the market,” the firm said in a report. It predicts a build of 48 Bcf in the East Region and 10 Bcf in the West Region, with a pull of 15 Bcf in the Producing Region.
Like air escaping from a deflating tire, the weather premium continues to exit natural gas pricing. Commodity Weather Group of Bethesda, MD, in its six- to 10-day forecast shows above-normal temperatures south and west of a broad arc extending from North Carolina to Missouri to North Dakota. All other sections of the country are forecast to be normal.
“While some brief pushes of heat are seen in the Midwest and East at times over the next two weeks, we are not seeing the sustained or severe levels that have frequented these regions this summer,” said Matt Rogers, president of the firm.
“Instead, the West and South-Central U.S. hold the heat for the majority of the next two weeks. One tough forecast is late next week when a potential hurricane approaches the Southeast. This could cool some areas and lead to hotter conditions in others based on the storm track, assuming a storm develops. The persistence on the models on developing this storm leads to a slight increase in the Gulf production threat (to 10%), defined as a major Cat 3-plus impact. But the most likely route may be Florida or the Southeast.”
Analysts suggest that weather factors may be losing much of their market-driving punch in the near term. “As we have had forecast days arrive, they have recently tended to arrive on the more moderate side. In addition to cooler-than-forecast realities, forecasts have also taken a noticeable dip lately. Temperatures on the forecast horizon are now cooler and more moderate than they were earlier in the summer,” said Peter Beutel, president of Cameron Hanover.
“This is to be expected. First of all, summer only has five and a half weeks or so left, officially. Unofficially, summer ends on Labor Day, three weeks before the autumnal equinox. Typically, we get a shot-across-the-bow in the form of cooler days in August that essentially act as harbingers of autumn. These are the opposite of ‘Indian Summer,’ when temperatures offer one late reminder of the passing season of heat.
“July was much hotter than normal, so a normal August may feel moderate in comparison,” he said. “Traders reasoned that if prices could drop while Texas, Oklahoma and Kansas sizzled, they would drop easily in a more moderate environment.”
The National Hurricane Center (NHC) reported at 2:05 EDT that the clouds and thunderstorms associated with a tropical wave south of Haiti were becoming better organized. The system continued to move to the west Wendesday afternoon at close to 20 mph. NHC raised the probability of development to 40% from early Wednesday’s 30%.
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