Lower Than Expected Storage Number Helps Send February Futures Down 54 Cents
Despite record gas demand in New England where temperatures plummeted well below zero Thursday, the EIA's report of a lower than expected 153 Bcf withdrawal from storage last week sent the near-month gas futures contract plunging a massive 54.2 cents on the day to $5.845. Futures started to the upside but quickly lost footing, falling about 45 cents in 20 minutes after the EIA report was released at 10:30 a.m. EST.
"The snow may still be on the ground here [in New Hampshire], and temperatures well below freezing, but that didn't stop natural gas and crude from melting down with natty [gas] having (at press time) an 83.5 cent range and crude, $1.92," said Jay Levine of Advest Inc. "With prices at such high levels, and both markets sitting in overbought territory, that in my opinion, had more to do with today's decline than the weaker-than-expected storage release, and yesterday's API/DOE stats.
"When you couple the mounting bearish fundamentals, the historically high prices, and a technically overbought condition, it's no small wonder that any sell-off might be steep," said Levine.
Nevertheless, it was quite a bit steeper than expected, given record demand in the Northeast and in response to a gas storage withdrawal that was within the range of market expectations. The Energy Information Administration's reported 153 Bcf withdrawal was quite a bit more than the same week last year (136 Bcf) and more than the five-year average (141 Bcf).
Some market observers, however, had been calling for something approaching 200 Bcf. "I thought it was light by maybe 50 Bcf, which is not a small difference," said Tim Evans of IFR Pegasus. "I had a 180-200 Bcf range, and I thought I might have missed on the downside. It was only slightly more than the five-year average and that's not that supportive."
The rest of the market apparently agreed. Futures went from being up on the day to being slammed right through numerous support levels, including $6.20, $6-6.05 where the February contract held in late December, and the spot low from late December at $5.94.
"I think the only confident forecast we can make now about the market is for more volatility," said Evans, noting, however, that several more weeks of potentially bearish storage reports could allow this slide to continue.
Despite the severe cold in New England and several solid days of peak demand, Evans is still expecting the storage report next week to show a withdrawal similar to, or even below, the 153 Bcf reported this week.
"Last week the actual heating degree days totaled 242. The forecast for this week is 202," he said. "We may exceed that, but you have to figure in that Chicago has been 40 degrees this week and a lot of the rest of the country has not been getting this bitter cold that we've had in the Northeast. St. Louis is laughing at us right now. Heating degree days might be more than 202 but are likely to be less than 242."
The next three weeks of storage withdrawals could fall short of what was reported during the same three weeks last year: 219 Bcf, 247 Bcf and 208 Bcf. "It's not looking like we are going to get there," Evans said. "The surplus is going to grow.
"I think there is a sense in the market now that 'you know what, we are going to get through this winter. We are at 2,414 Bcf through Jan. 9 and week by week it becomes easier to squint real hard and see the end of the heating season and be able to do the math and say 'you know what, we are going to have 1,000 Bcf left at the end.'"