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Lean Storage Build On Tap, Yet June Called Unchanged

June natural gas is expected to open unchanged Thursday morning at $2.17 as traders discount what is expected to be a supportive government inventory report and a mildly supportive weather outlook. Overnight oil markets were mixed.

Analysts are looking for a modest decrease in the year-on-five-year storage surplus. Tim Evans of Citi Futures Perspective is estimating a 60 Bcf build and said, "While the temperature forecast doesn't look all that dramatic, it looks as though there will be enough weather-related demand to limit upcoming storage injections."

Evans' figures show the current year-on-five-year surplus of 836 Bcf easing to 773 Bcf by May 27, and he says the declining surplus is "confirming that the market is becoming tighter on a seasonally adjusted basis. This tends to correlate with rising prices over the intermediate term, although we can also think of it as reducing the downside price risk and expanding the upward potential, even if prices fail to rise."

Currently Evans is standing aside the market "until we can identify a new limited risk trade entry."

Other analysts see a build slightly less than Evans. ICAP Energy is expecting a build of 55 Bcf, and industry consultant Bentek Energy's flow model calculates a 59 Bcf increase. A Reuters poll of 23 traders and analysts revealed an average 58 Bcf with a range of +50 Bcf to +65 Bcf.

Traders can't help but wonder if such a smallish increase might lead to a market rally given historically higher injections. Last year 101 Bcf was injected, and the five-year average is for a 79 Bcf build.

Expectations are that the 10:30 a.m. EDT release of the data by the Energy Information Administration (EIA) will be right on track, According to John Sodergreen, editor of Energy Metro Desk, "[W]e see little indication of a surprise at all. Nada, nothing. All three categories we track came in at 58 Bcf, give or take a tenth of a point.

"The spread between the three categories we track was less than 1 Bcf wide. And the range between last Friday's Early View and the current consensus, tightened, as it should. Everything seems perfectly normal, therefore and 58 seems to be the number of the week."

Could upcoming weather provide a mechanism to take the edge off further injections? WSI Corp. in its Thursday morning report said, "The six-10 day period forecast features residual below average period anomalies across the Northeast, Midwest and Plains, as well as the Pacific Northwest. The southern tier and interior West will likely range warmer than average.

"[Thursday's] forecast is generally cooler than yesterday's forecast across the Northwest and central U.S. The interior West and East are a little warmer. CONUS GWHDDs are down 1 to 19.9. CONUS PWCDDs are up 0.7 to 17.7 for the period."

In overnight Globex trading June crude oil rose 41 cents to $46.64/bbl and June RBOB gasoline eased fractionally to $1.5799/gal.

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