Storage Data, Past, Present and Future, Gives Bulls the Nod
Following on the heels of gains achieved in the Tuesday evening Access trading session and amid buying frenzies both before and after the release of fresh storage data, natural gas futures spiked sharply yesterday as traders reacquired long positions liquidated over the past two weeks.
The November contract finished at $5.508, up 37.4 cent on the day, 50-cents for the week, and just over a nickel shy of its all-time high set Sept. 26.
Normally, natural gas futures experience a calm before the burst of trading activity that erupts each Wednesday following the release of AGA gas storage data. However that was not the case this week because of an early prediction of extremely low storage injections by New York-based Pira Energy Group.
Bulls had little trouble taking the market higher yesterday morning. Just prior to the AGA release at 2 p.m. (EDT), the November contract was up 11.6 cents at $5.25.
A spokesperson for Pira made a "preliminary estimate" Tuesday calling for a meager 7 Bcf injection in next week's storage report (see Daily GPI, Oct. 11). That prediction evidently weighed heavily in the minds of traders yesterday morning before the AGA's release of last week's data.
According to the American Gas Association, 62 Bcf was injected into underground storage facilities last week, raising the total working gas in storage to 2,542 Bcf or 77% full. While the injection was larger than the 49 Bcf refill a year ago, it was deemed bullish by market participants because it was less than both the 5-year average build of 63 Bcf and the range of market expectations focused on a 70-80 Bcf injection. At 2:30 PM (EDT) the November futures contract was 30.6 cents stronger at $5.46.
While traders expressed their surprise over the storage injection with their buying tendencies yesterday, analysts were doing so with their words. "Bullish," was the one word adjective Ed Kennedy of Miami-based Pioneer Futures used to describe the storage report. "Now that we have moved back into the $5.40s, I would not be surprised if we re-tested prior highs at $5.565," he said.
Without the full benefit of looking at this week's heating degree-day data, Kyle Cooper, of Salomon Smith Barney thinks it is reasonable to expect a single-digit storage injection in next week's AGA report. "We are still only dealing with a couple of days worth of data, and temperatures are expected to continue to moderate through the weekend so its still hard to tell, but it doesn't seem outlandish that we will see a injection in or slightly above the single digits," he said.
Cooper viewed yesterday's storage report in context of historical figures. "Only three weeks this injection cycle has a regression analysis, using temperatures versus historical figures, produced a figure greater than the actual American Gas Association's data," he said. And last week's report of 78 Bcf injection did just that, prompting some people to worry that there had been a fundamental change. Now, in light of this week's 62 Bcf injection report, last week's report looks like an aberration, he said.
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