After venturing above $4 in early Thursday morning trading for the third consecutive session, October natural gas futures plummeted back to earth after the Energy Information Administration (EIA) reported that 103 Bcf was injected into underground storage for the week ending Sept. 10. However, the dip was short lived as the recent bull move prevailed.
Heading into the 10:30 a.m. EDT report, the October contract was trading at $4.026, but in the minutes that immediately followed, futures dropped to a low of $3.852. However, once report-trading cleared, the prompt-month contract returned to the upside to notch a high of $4.144 before closing the day at $4.062, up 6.7 cents from Wednesday's regular session close.
Thursday's gain brought the bulls five-day push higher to 29.4 cents. More importantly, on the charts the rebound finally took out $4 resistance on its third try.
While the 103 Bcf injection came in just above most industry expectations, the build came in above historical comparisons for the first time in several weeks -- and well above those comparisons in fact. Last year for the similar week only 66 Bcf was put into storage and the five-year average build for the week was 77 Bcf. Bentek Energy's flow model had been projecting a 98 Bcf injection.
"I think Thursday's action says a lot about the power behind this move," said a New York-based trader. "We saw our first truly bearish injection in a long time, the market performed a little dip, and then returned to the upside. An injection like this can completely wipe out a move, but futures held firm for the most part Thursday."
Citi Futures Perspective analyst Tim Evans, who had been expecting a 73 Bcf injection, called the build "bearish" and said it will be interesting to see how the market digests the data for the rest of the week.
"The 103 Bcf net injection to storage for the week ended Sept. 10 [was] at the higher end of the range of market expectations but not necessarily beyond some of the 'whisper numbers,'" he said. "It was bearish relative to the consensus, however, well above our own estimate, and above the 77 Bcf five-year average. The question now (as every week) is what can the market do with this number. If the price manages to hold the recent range or even shrug off the data to move higher, it will make a clear bullish statement. This will test our hypothesis that the market is undervalued."
As of Sept. 10, working gas in storage stood at 3,267 Bcf, according to EIA estimates. Stocks are now 182 Bcf lower than last year at this time and 192 Bcf above the five-year average of 3,075 Bcf. For the week, the East Region injected 54 Bcf while the Producing and West regions added 36 Bcf and 13 Bcf, respectively.
Traders saw Wednesday's slight uptick as nothing more than storage report preparation. "[Wednesday] was just traders getting out of shorts before the number comes out," said John Woods, senior trader at McNamara Options in New York. He added that traders who were short from the $3.70s and $3.80s had sold earlier on what they thought was an uninspired tropical storm outlook and were taking their losses, and "guys who have been in a while are just taking some money off the table." He added that $4.125 was considered near-term resistance, but a break above that was likely to trigger stop-loss buying.
Technical traders utilizing Elliott Wave techniques suggest that recent strength may be likely to continue. "Since the $3.703 low our near-term target has been $4.039. On Wednesday this target was met," said Brian LaRose, an analyst with United-ICAP. "The question now: do we continue higher? From a wave count perspective the leg up from $3.843 appears to be a little short in both extent and duration, which means natgas still has room to advance. Our next objective in this case: $4.140-4.160-4.247. Bulls proceed with caution," he said Thursday morning.
On the weather front, while three hurricanes continued to gain strength in the southern Gulf of Mexico and the Atlantic, none of them as of Thursday afternoon appeared to be a threat to U.S. energy infrastructure.
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