The Energy Information Administration's (EIA) Thursday morning report that 23 Bcf was injected into underground storage for the week ended April 6 received little fanfare from traders as May natural gas futures traded a slim 9-cent range before settling at $7.924, up 6.9 cents on the day. Instead, attention was paid to the winter 2008 contracts, some of which have recently cracked the $10 price level.
The prompt month hovered around the $7.880 level in the minutes immediately before and after the report's 10:30 a.m. EDT release. Noting that the injection came in within expectations, Commercial Brokerage Corp.'s Ed Kennedy said storage reports on the whole are overrated by the energy industry. "The storage report is the most ridiculous thing in natural gas trading," he said. "No matter where we start the injection season, come the end of September we are full. How does that always seem to happen. Take 2005 for instance, We had all of those shut ins because of the hurricanes and the world was coming to an end and guess what? They still filled storage."
Kennedy said the attention of the industry should be focused on prices down the road. "The winter months have broken out to the upside over the past couple of days. I noticed there is now a $10 handle in front of the January 2008 contract, which occurred discreetly. The winter strip has also broken out to the upside very quietly," he said. "I think people are taking protection ahead of the hurricane season. While most forecasters are calling for less storms than 2005, that is no biggie because it was a record year. Everyone is calling for a very active year. What people are not picking up on is that Colorado State University, AccuWeather and the British are all saying that the storms are going to be stronger. With winter gas delivery prices headed higher at this point, I think people may be picking up on that now."
In the near term, Kennedy said he believes the May contract is going to work a little lower. However, he warns a breakout higher is right around the corner. "You have to start to think about becoming an aggressive buyer," the broker advised. "We are going to break out to the upside at some point here in the not-too-distant future. I think people are going to start getting more aggressive. What we are seeing with the winter strip breaking out may be a harbinger of that."
January and February natural gas futures on Thursday each climbed 4.2 cents to close at $10.023 and $10.008, respectively.
Some Midwest traders are looking out the window and seeing natural gas as a buy. "The outlook for natural gas is a bit chilling," mused Phil Flynn of Alaron in Chicago. In his view the cold April temperatures and the EIA outlook are very bullish for natural gas (see Daily GPI, April 11). Flynn suggests this may be one of the coldest Aprils on record for the Windy City and noted that it was snowing like crazy in Chicago Wednesday morning. "Buy June natural gas at $7.65 with a stop at $7.35," he said.
AccuWeather predicts high temperatures in Chicago through the weekend in the low to upper 40s. The average high this time of year in Chicago is 57, the forecaster said.
The 23 Bcf build came in just above last year's 15 Bcf injection and the five-year average build of 8 Bcf. Estimates for the week ranged anywhere from a 17 Bcf withdrawal to an injection just north of 30 Bcf. A Reuters survey of 20 estimates expected storage levels to rise by approximately 14 Bcf, while the ICAP storage options auction held Wednesday afternoon produced a consensus injection of 25 Bcf. Golden, CO-based Bentek Energy projected an injection of 29 Bcf for the week (see Daily GPI, April 12).
Like many within the industry, Bentek Energy pointed out that next Thursday's storage report for the week ended April 13 could be more interesting. The analytical firm said that despite receiving the third injection of the season, this week's cold across much of the country could produce another withdrawal in the report next week.
Citigroup analyst Tim Evans agreed. "With the storage data for last week coming in about as expected, we think the focus will quickly shift to current cold temperatures and the likely size of the corresponding net withdrawal in the next weekly report," he said.
As of April 6, working gas in storage stood at 1,592 Bcf, according to EIA estimates. Stocks are 119 Bcf less than last year at this time and 352 Bcf above the five-year average of 1,240 Bcf. The Producing region injected 13 Bcf, while the West and East regions chipped in 6 Bcf and 4 Bcf, respectively.
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