Ending the streak of consecutive triple-digit injections at three, the Energy Information Administration (EIA) reported Thursday morning that 92 Bcf was put into underground storage for the week ended June 8. The double-digit build was all that was necessary for the bulls to take control once again, as July natural gas futures soared to a high of $7.825 before settling at $7.808, up 20 cents from Wednesday's close.
After trading at $7.610 in the minutes leading up to the 10:30 a.m. EDT report, the prompt month put in a $7.800 trade in the minutes that immediately followed.
Traders, awaiting a buying opportunity, had been expecting another bounce off the low end of the broad mid-$7 to low-$8 trading range that has been in place since March. "The market is now in a technical support area, and the market pulled back Wednesday because of an expected bearish [EIA] number," a New York floor trader said Thursday morning. However, the number ended up coming in on the low side of expectations instead, which in turn supplied Thursday's price boost.
"I thought we had been scraping the bottom price-wise, so the bump higher was not surprising," said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. "However, we are still in this range. Over the last couple of months, we've seen the futures market staying above the prior month settlement or first of the month index cash price at the Henry Hub. Futures are trying to maintain a premium and whenever it trades down to the prior month's settle it finds support there. I think that is what we saw this morning." June natural gas futures went off of the board on May 29 at $7.591, a level that July has tested the last four regular trading sessions.
Saal noted that he wouldn't refer to the 92 Bcf injection as a "bullish number, but the expectations were unfulfilled, which sparked some short-covering in a market that is probably -- at least right now -- lacking liquidity. I think we will probably now test the higher end of the price range again."
In digesting the report, Jay Levine, a broker with enerjay LLC, said the 92 Bcf injection came in "on the low side" of industry expectations. "Like I've said in recent commentary -- and in spite of recent weakness in natural gas futures, in marked contrast to a strong petroleum complex -- I'd be playing the [storage] over/under," Levine said. Since Thursday's number was under, Levine was not surprised that July natural gas futures headed higher.
"Also, it's not every day where the market touches both my initial support ($7.605) and my resistance ($7.750) within minutes," he added. "Reason enough to have resting orders and, if you're trading the damn thing, you'd now be flat!"
A Reuters survey had been expecting a 98 Bcf build, while some were holding on to expectations of a triple-digit build. The number revealed Thursday morning was still well above last year's 77 Bcf build, but 1 Bcf shy of the five-year average injection of 93 Bcf.
As of June 8, working gas in storage stood at 2,255 Bcf, according to EIA estimates. Stocks are 131 Bcf less than last year at this time and 365 Bcf above the five-year average of 1,890 Bcf. The East region injected 61 Bcf, while the Producing and West regions chipped in 20 Bcf and 11 Bcf, respectively.
By failing to record the fourth straight week of triple-digit injections, some market watchers equated the smaller build to summer heat finally settling in. "The 92 Bcf is bullish relative to expectations and indicates a further seasonal shift toward firmer cooling demand," said Tim Evans, an analyst with Citigroup.
However, weather data has not been all that supportive of the market bulls' case. For the week ended June 9, the National Weather Service (NWS) tallied only normal accumulations of cooling degree days (CDD) in populous New England and the Mid-Atlantic states. New England saw two CDD, or five fewer than normal, and the Mid-Atlantic states of New York, New Jersey and Pennsylvania experienced 26 CDD, or eight more than normal. Equally uninspiring CDD accumulations are on tap for the week ended June 16, according to the NWS. New England is forecast to receive 14 CDD, or two more than normal, and the Mid-Atlantic states listed above are expected to see 24 CDD, or one day less than normal.
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