Putting an end to the three-day run lower by May natural gas futures, the prompt month on Wednesday closed 7.9 cents higher at $7.497 after meeting expected support down near the $7.400 level. Whether the market has another $8 run in it remains to be seen and will likely be decided to some degree by Thursday morning's storage report, which some point out could reveal a record-setting withdrawal for the month of April.
The natural gas futures prompt month traded in a slim range on the day between $7.545 and $7.390 and crude futures "did not appear to be playing that much of a factor" on the day, a Washington, DC-based broker said. May crude put in a high of $63.35/bbl before settling Wednesday at $63.13/bbl, up three pennies from Tuesday.
The broker noted that natural gas was getting very close to the line that separates a correction in a bullish move from a switch in market control. "The move lower during the first two days of the week now appears to be more of a corrective action as opposed to an actual switch from a bullish to a bearish attitude," he told NGI. "Although we were very close to getting the technical change to bearish, the bulls are still hanging on here. A down day tomorrow might force the switch, but the $7.300 to $7.400 level is pretty decent support that we have tested once or twice before."
He noted that while there is buying left to do, some are still holding out for lower prices. "We have a fair number of commercial buyers who are lining up to buy, but of course they would like to buy at a little lower price," the broker said. "However, I do think the buyers are becoming aware that they need to do something before all the bets are made for summer prices, whether they be higher or lower."
Turning attention to Thursday morning's storage report from the Energy Information Administration (EIA) for the week ended April 13, the broker said the industry's take on the storage situation has been altered some. With some calling for a significant withdrawal during the second full week of the injection season, he said it should be interesting to see how the market reacts.
"The closeness of last week's storage report number to the norm seemed to hold prices at bay a bit, but if we see a large withdrawal Thursday morning, we could see an end to this little down move. For four solid weeks, our sell-offs have been mostly two-day affairs at the most, so we will see what happens here. If $7.400 ends up holding up, then I think we have a chance to make another run back up to $8. All of the discussion of storage and where we are in comparison to previous years is on the backburner. I think the industry is more focused on the rate of change now."
Commercial Brokerage Corp.'s Tom Saal said the recent move lower in futures prices was to be expected, but the uncertainty surrounding what the industry will see in Thursday's storage report could spark the next move. "I think the market gravitated down to the area where April futures expired," he pointed out. "Now we will have to see what kind of information we can glean from Thursday's storage report. The highest withdrawal projection I have heard is 60 Bcf and the highest injection estimate I have seen is 5 Bcf. We have a large range, which should be expected because of the anomaly of having a withdrawal at this point in the year."
A Reuters survey of 20 estimates was expecting a 41 Bcf withdrawal to be revealed, while the ICAP storage options auction Wednesday afternoon was calling for a 35 Bcf withdrawal.
Noting that "storage facilities continue to bounce between injections and withdrawals," Golden, CO-based Bentek Energy said its Flow model indicates a return to withdrawals with 29 Bcf being subtracted from storage for the week ended April 13. The company pointed out that a 29 Bcf withdrawal would bring stocks 11.3% below the five-year high (last year) and 23.5% above the five-year average. "Including our estimate this week, the net change in stocks over the past five weeks has been an injection of only 47 Bcf," Bentek said, noting that it expects the report to show that the Producing region withdrew 17 Bcf and the East region withdrew 16 Bcf, while the West region injected 4 Bcf for the week.
The number revealed Thursday will be compared to last year's 52 Bcf build and the five-year average injection of 26 Bcf.
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