Storage Injections Ramp Up; Drive Futures Below $5.00
After experiencing muted price moves for more than a week, the natural gas futures market tumbled to new three-month lows Thursday as traders digested the latest in a recent string of bearish storage reports. The Energy Information Administration's (EIA) weekly storage report featured a larger-than-expected 37 Bcf storage injection.
At first glance it appeared as if the market would shrug off the storage data. However, when the mid-morning buying surge failed to boost the May contract back up to Wednesday's $5.065 close, sellers were given the green light to punish the market Thursday afternoon. At the closing bell, the May contract was down 14.6 cents at $4.919.
According to EIA estimates, there was 680 Bcf of working gas in storage last Friday (March 28), which was 820 Bcf below year ago levels and 506 Bcf below the five-year average. Of the 37 Bcf refill, 28 Bcf was injected in the East region, which finally saw a break last week after four months of below normal temperatures. Versus market expectations centered on a 20 Bcf refill, the 37 Bcf build was slightly bearish. Versus the year-ago report featuring a 61 Bcf injection, the 37 Bcf injection was an undeniably bearish development.
Last Thursday, the EIA shocked many observers by issuing a 7 Bcf injection. But despite the fact that was the earliest refill in the nearly 10-year history of storage data, the market shrugged off the news en route to a 4.9 gain on the April's expiration day. When the market moved higher on bearish storage data again yesterday, there was the flirting idea that maybe the market had bottomed.
However, George Leide of Rafferty Technical Research was not among those touting the market's upside potential, citing instead the lackluster nature of recent rallies. "This market is not too exciting, especially to the upside. We continue to make lower lows and lower highs. Any rally we get just seems to be a tired one."
Although some would say the market had been range-bound in the low to mid-$5.00s for the latter half of March and beginning of April, it also had formed a little downtrend, which is defined by a declining wedge formation on the daily continuation chart. "For [Thursday], the bottom of the wedge [offers] support at $4.905. The line declines by about a penny a day." On the upside, the top of the wedge is currently at $5.10.
Because the slope of the upper boundary of the wedge declines at a rate of about 5 cents a day, Leide noted that the two lines will converge in just a few days. Below $4.90, support is seen at $4.69-72. However, Leide would not be surprised if the market took its time getting there. "April is a shoulder month, and I don't see the market returning to the volatility we had this winter. I look for a slow price erosion."
While agreeing that lower prices are in the cards in the intermediate to longer-term, Tom Saal of Commercial Brokerage Corp believes we could see a rebound Friday. "We are oversold on the daily charts and could get a rally as shorts take their profits for the week."
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