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Physical NatGas Moves Little, But Futures Bound Higher Off EIA Stats

This time around it was futures' turn to take the trading spotlight. Physical natural gas prices for Friday delivery drifted higher as most cash traders elected to get their deals done before the 10:30 a.m. EST release of government storage data.

The NGI National Spot Gas Average added 3 cents to $2.01. Eastern points, on average, gained a penny. The Energy Information Administration (EIA) reported a storage injection of 52 Bcf, about 7 Bcf less than what traders were expecting, and bulls took control of futures trading. Prices posted a double-digit gain. At the close December settled higher by 10.2 cents to $2.364 and January had added 9.4 cents to $2.539. December crude oil slumped $1.12 to $45.20/bbl.

December futures posted its highest trade in two weeks at $2.383. "After the report the market steadily started climbing, and volume was high, 320,000 contracts," a New York floor trader told NGI.

"The December, January, February and March contracts were all up between 9 and 10 cents. There was lots of outright buying. None of this wimpy spread trading, buying and selling something against it. There was no risk-aversion. This was a risk-on trade."

Going into the report with little in the way of heavy heating demand on the horizon, the consensus was leaning toward storage builds well past the October end of the injection season. Tim Evans of Citi Futures Perspective calculated a 69 Bcf increase for the week ended Oct. 30, somewhat above consensus figures in the high 50 Bcf area, but Evans is also looking at builds for the next three weeks.

Storage is currently at 3,929 Bcf, tied for the record set previously in October 2012, and if his estimates are correct, by the third week in November storage will be at a record 4-plus Tcf.

Others stretch it even further. John Sodergreen, editor of Energy Metro Desk, said, "The way things are currently going, we will be very close to seeing a build in December (of all things); the weather gods are suggesting things are getting nippy (finally) in key areas, but from our vantage, the December build anomaly may be more than possible."

Last year, 90 Bcf was injected and the five-year pace stands at 58 Bcf. PIRA was estimating a 57 Bcf increase, and industry consultant Genscape was calling for a 61 Bcf build. A Reuters survey of 23 traders and analysts revealed a sample mean of 59 Bcf with a range of 52 to 69 Bcf.

Although storage is at a record, analysts see somewhat of a "tightening" market. "The 52 Bcf net injection into natural gas storage for last week was the third consecutive bullish-side miss, suggesting either a tightening trend in the background supply-demand balance, or perhaps some difficulty in matching production flows with available remaining storage capacity. In any case, the market looks somewhat less oversupplied, a constructive development," said Tim Evans of Citi Futures Perspective.

In spite of the strong market finish, the argument that the risk this time of year is for leaner builds and (presumably) higher prices is not resonating well in all corners. "We're not buying it this year. Our consensus came in at 57 Bcf for this week's report, and the survey index came in at 58 Bcf. The spread between the three categories we track was tight at 1 Bcf. As we noted, the editor sees a little high-side risk, but not much. The 58-61 Bcf tight range should be the game this week," Sodergreen said.

Inventories now stand at 3,929 Bcf and are 371 Bcf greater than last year and 147 Bcf more than the five-year average. In the East Region 32 Bcf was injected, and the West Region saw inventories increase by 4 Bcf. Stocks in the Producing Region rose by 16 Bcf.

EIA also announced Thursday that it would begin issuing previously announced newly formatted (five-region) weekly Natural Gas Storage Reports beginning Nov. 19 (see Daily GPI,Sept. 30).

EIA said the population of storage operators sampled for the weekly report will stay the same under the new format. "We report weekly inventory numbers for each region and the change from the weekly numbers is derived from that," said Amy Sweeney of the EIA. "We have also lowered the threshold for reporting revisions from equal to or greater than 7 Bcf to greater than or equal to 4 Bcf."

In spite of the change from three to five regions, many don't see the new report format as requiring any massive overhaul of the analysis.

"For me, it doesn't. I don't tend to spend a lot of time on the inter-regional mechanics of what is going on," said Stephen Smith, publisher of the StephenSmithEnergy.com Weekly Gas Outlook. "I focus on national production and what is going on at an aggregate level. It's easier, and I can still get better than average storage results using my approach."

Kyle Cooper of IAF Advisors sees analysts "having to put everything in new buckets, and it should help in terms of getting more detail of what's going on where."

He said he might have to dig a little deeper into the new Rocky Mountain region, as earlier "CIG pulled some of their postings so that data went away, but the West is one of the most transparent regions of all."

In the physical market New England points eased as next-day power prices declined. Intercontinental Exchange reported that next-day on-peak power at the New York ISO Zone G (eastern New York) delivery point fell 92 cents to $29.08/MWh and Friday power at the ISO New England's Massachusetts Hub fell $6.53 to $35.36/MWh.

Deliveries to the Algonquin Citygate fell $1.26 to $2.69, and gas on Iroquois, Waddington lost 8 cents to $2.45. Packages on Tennessee Zone 6 200 L tumbled 85 cents to $2.64.

Gas on Texas Eastern M-3, Delivery was seen 9 cents lower at $1.02, and gas bound for New York City on Transco Zone 6 slid 4 cents to $1.32.

Other trading hubs were more resilient. Gas at the Henry Hub rose 7 cents to $2.09, and gas on El Paso Permian added 5 cents to $2.01. At the Cheyenne Hub, gas was quoted 4 cents higher at $2.06, and gas at the SoCal Citygate changed hands 9 cents higher at $2.49.

The near-term weather outlook has changed little. WSI Corp. in its six- to 10-day outlook said, "Thursday's 6-10 day forecast is similar to yesterday's forecast with more mild conditions. The southern and eastern US are cooler, but the western and central U.S. is warmer. These differences offset each other and GWHDDs are almost unchanged as they are only down 0.1 to 73.8 for the period."

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