Coming a day early because of Thanksgiving, the Energy Information Administration's (EIA) weekly storage report Wednesday showed a net 1 Bcf withdrawal for the week ended Nov. 17. The December natural gas futures contract took the report in stride as a number of traders had decided to begin their Thanksgiving holiday a day early. Despite the nonevent, the prompt month retained its earlier losses to close at $7.718, down 27 cents on the day and 46.1 cents lower than the previous week's close.
After trading lower in the overnight Globex session, the prompt month opened Wednesday's regular session at $7.880 and went on to put in a morning low of $7.680 just before 11 a.m. EST. The contract was trading at $7.730 prior to, and immediately following, the noon EST release of fresh storage news.
"There were definitely a lot of people missing Wednesday, but I don't know if that translated into reduced volume," said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. "The storage report was really nothing more than neutral. Some people were looking for an injection of a few billion cubic feet, while others were looking for a small withdrawal."
Looking at the sell-off, Saal said soft cash market prices likely helped futures lower overnight, and bearish petroleum inventory data Wednesday morning probably helped keep futures weak. "What I heard from the trading floor is that the crude inventory number came out and was bearish, and the local traders began selling natural gas before hitting some fund stops."
Looking longer-term, the broker said things appear to be in a "wait-and-see" pattern. "We are still drifting sideways until the winter weather picture comes into better view," he said. "It will either show up or not; I don't think there is anything less or more to it than that."
Other market participants echoed the belief that natural gas futures are currently trading sideways. "We've been on the same supply continuum for a while," said Bill O'Grady, director of research at AG Edwards in St. Louis. "If the weather is warm, prices can fall sharply, but if it is colder, they can advance in a similar manner. This time of year (for natural gas) is like soybeans in July. Every new weather forecast every six hours can affect the market."
He said that what was even more confusing was private forecasters issuing still more forecasts based on the same data the National Weather Service uses, and that can make the market swing. "It's just that time of year, and it gets like this for about eight weeks from Thanksgiving through early January, and then it's known whether supplies will stay tight and prices high or the weather has been too warm and prices are in danger of falling. The preponderance of the forecasts are leaning that it [winter] is going to be mild," O'Grady said.
Having said that, he noted there are caveats. Weather forecasting is good out to about 14 days, and a second problem is that even if the overall balance of the winter is mild, one week of cold weather can make all the difference. "One of the classic winters was 1989-90, before natural gas futures traded. It was one of the coldest Decembers followed by one of the mildest Januarys," he said. "I remember a weather commentator saying it was a normal winter. If you have your head in an oven and feet in a bucket of ice water, on average you can be normal!
"My reading of the intermediate-range forecasts is that late next week [the week ending Dec. 1] should be cold, and that could give the market a boost. For right now you can tell from the charts that this market doesn't know what to do with itself," O'Grady added.
A Reuters survey of 21 industry players had been looking for a 6 Bcf withdrawal, although the survey's range of predictions ran from a 22 Bcf withdrawal to a 5 Bcf build. The ICAP derivatives auction held Tuesday afternoon showed that market participants expected storage inventories to remain unchanged. Golden, CO-based Bentek Energy was projecting net storage injections of 1 Bcf and 12 Bcf in two separate reports that use different models (see Daily GPI, Nov. 22).
The 1 Bcf withdrawal report was similar to the 1 Bcf build last year and the 3 Bcf withdrawal five-year average.
As of Nov. 17 working gas in storage stood at 3,449 Bcf, which was still 174 Bcf higher than the same time last year and 240 Bcf above the five-year average of 3,209 Bcf. The East region injected 2 Bcf for the week, while the West region withdrew 3 Bcf and the Producing region remained unchanged.
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