Despite coming in on the high side of most industry expectations and well above historical comparisons, the Energy Information Administration's (EIA) report that 58 Bcf was injected into underground storage for the week ended March 30 was greeted by natural gas futures traders on Thursday morning with a collective yawn. After trading within a range from $7.500 to $7.720, May natural gas futures ended up settling for the week at $7.607, up 9.2 cents on the day but 12.3 cents lower than the previous week's close.
After trading at $7.530 just prior to the report's 10:30 a.m. EDT release, the May contract inched higher to record a $7.548 trade in the minutes that immediately followed. Around noon EDT, the prompt month climbed out of the $7.50s, but was once again repelled by the $7.70 level.
The fact that traders were unimpressed despite the numerous bearish indicators surrounding the report was seen as a sign that a large storage build was already factored into the market. For the last report of the traditional withdrawal season, most industry expectations had been looking for a build of 40-60 Bcf. The 58 Bcf build dwarfed both last year's 24 Bcf withdrawal and the five-year average withdrawal of 12 Bcf. The report dropping on the last trading day of the week added a level of importance because traders were getting their books in shape ahead of the long holiday weekend.
Despite the bearish indicators, one broker said traders did not react because the storage situation is no longer an unknown equation. "We know how much gas we have to put into storage between now and the end of September," said Ed Kennedy with Commercial Brokerage Corp. in Miami. "There are no surprises here, especially knowing what we know now. Look at 2005, you can destroy 20% of the rigs and they are still going to fill storage, so what is the big deal? At the end of the injection season, storage will be full regardless of where they start.
"The only thing that matters now is weather. If it is a 'shocking' surprise on the storage number, yes, the market will respond, but Thursday's report was basically in line with expectations, which elicits a yawn."
Looking at the current price structure in futures, Kennedy pointed out that the range is $7-8 right now, and "big surprise," the market was trading in the $7.50s for a good portion of Thursday's session. "We are adequately priced for what we know about the fundamentals. The one fundamental we don't know is what the weather is going to be like for the spring and summer," he said. "That will affect the market in one way or another, make no mistake about it. We are going to be getting more long-range forecasts as we go through the rest of this month.
"There is a lot of buying if you get down towards the $7 area as all of the people who will be injecting for the summer have their hedge programs in place. They will be buying the gas at a fairly good price for what they are going to be injecting this summer. Above $7.750, everyone is perfectly willing to sell it. For the time being that will remain the case."
Short-term traders are anxious for the market to move in one direction or another. "Floor sentiment is neither bullish nor bearish at this time. Traders are just waiting for the market to break out either way," said a New York floor broker. He noted a trading range of $8-6.80, "but that range has been holding for about a month now. Traders are looking for something out of the range of expectations," he said.
Seasonal students are trying to gauge whether an early spring rally might be in the cards. "Averaging the years 1990 to 2005 yields an 8th February to 17th May average preseason rally," said Walter Zimmerman of United Energy. He cautioned that "there is nothing that compels any one year to follow an average performance. The question here is whether the $7.790 high from Monday [April 2] was another early arrival of the preseason rally peak."
Over in the petroleum futures arena, there was less weakness than some expected following news that the British hostages had been released by Iran. May crude shed a dime on the day to finish the week at $64.28/bbl. "Interesting but not surprisingly, crude et al. didn't completely fall out of bed [Thursday] since -- and we've all heard it before -- buying the rumor, selling the fact (or vice versa) applies," said enerjay LLC broker Jay Levine. "The point being one would have thought the complex would collapse after this news, but it doesn't work that way. Sure, it's one more reason for an eventual sell-off -- independent of a technically overbought market -- but there's always that period of counterintuitive action which throws the masses a curve ball simply because they're not expecting it."
Working gas in storage stood at 1,569 Bcf as of March 30, according to EIA estimates. Stocks are 127 Bcf less than last year at this time and 337 Bcf above the five-year average of 1,232 Bcf. The Producing region led the way by injecting 32 Bcf for the week, while the East region injected 25 Bcf and the West region chipped in 1 Bcf.
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