June natural gas and crude futures took another break from the upside Wednesday as light profit-taking was observed and traders prepared for what will likely be another bearish natural gas storage report Thursday morning for the week ending May 8. Prompt-month natural gas dropped 11.6 cents to close Wednesday's regular session at $4.333.
Despite a somewhat supportive Department of Energy petroleum inventories report Wednesday, June crude futures values backed off on the day. The contract closed Wednesday's regular session at $58.02/bbl, down 83 cents from Tuesday's finish.
"The natural gas market has...pulled back from higher levels on a wave of profit-taking in sympathy with the parallel weakening of the equity and petroleum markets," said Tim Evans, an analyst with Citi Futures Perspective in New York.
Evans said Wednesday's dip might also be in anticipation of Thursday morning's storage report. "We're expecting a net injection of 94 Bcf, bearish relative to the five-year average 83 Bcf refill, but we're also seeing some other estimates now in the 100 Bcf area, so an even more bearish outcome is certainly possible," he said. "With a year-on-five-year storage surplus of 362 Bcf and still rising, we don't expect to see natural gas prices maintain the strength of the past three weeks without at least needing to take a rest along the way."
Bentek Energy said its flow model indicates an injection of 99 Bcf, which would bring stocks 1% below the five-year high and 23.1% above the five-year average. The research and analysis firm expects a 59 Bcf injection in the East region, a 27 Bcf injection in the Producing region and a 13 Bcf injection in the West region.
Some analysts are trying to figure out when declining rig counts will eventually catch up with an anticipated increase in demand. Estimates for the "impact date" range from sometime later this month to mid to late summer (see Daily GPI, May 11; May 6).
"Consumption has not yet been stimulated by lower prices, apparently," said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. He added that "it will be interesting to see if demand rebounds before supplies start to decline because of the huge drop in rig counts."
According to Beutel, it's just a matter of time before improved demand collides with a falling rig count. "At this stage demand is still dropping, although the rate may be stalling, while production does not yet seem to have been affected. One has to expect producers to slow recovery [production] rates now, though, with a view to capitalizing on higher prices later, at some point soon."
Beutel contends that delayed production now will reap benefits in the future. "If we could delay a Bcf here or there for recovery a year or two from now, we certainly would do it. The market is clearly telling us that it would be the smart thing to do," he said.
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