November natural gas futures traders pushed the contract lower Thursday morning following news from the Energy Information Administration (EIA) that a slightly larger than expected 74 Bcf was injected into underground stores for the week ending Sept. 24.
The writing appeared to be on the wall ahead of the 10:30 a.m. EDT report as November futures had trickled lower to $3.882. In the minutes that immediately followed the release, the prompt-month contract declined even lower to $3.780. Futures went on to close at $3.872, down 9 cents from Wednesday's regular session close.
While calling the injection "slightly bearish," Citi Futures Perspective analyst Tim Evans, who had been expecting a 71 Bcf build, said the report doesn't shed much light on the supply/demand situation in natural gas.
"The 74 Bcf net injection was slightly above consensus expectations for a 69-70 Bcf build and also above the 67 Bcf five-year average benchmark, a mildly bearish result," he said. "This probably doesn't tell us much about the underlying supply/demand balance in the market though and implies no major changes to the ongoing storage outlook."
Bentek Energy had been expecting a 67 Bcf injection and a Reuters survey produced a 70 Bcf injection expectation. In addition to outclassing the five-year average, the actual 74 Bcf build was also larger than last year's date-adjusted build for the week of 64 Bcf.
As of Sept. 24, working gas in storage stood at 3,414 Bcf, according to EIA estimates. The injection decreased the year-on-year deficit to 166 Bcf but expanded the year-on-five-year average surplus to 202 Bcf. For the week the East Region injected 48 Bcf while the Producing and West regions added 21 Bcf and 5 Bcf, respectively.
Some analysts suggest that there will be little need to buy futures contracts in the near term as significant cold weather is months away. "We are not going to get any real help from the demand side for a while, and we are realistically about two or two-and-a-half months away from any concentrated heating demand. This market prefers heat or cold to be present in New York (or Boston), Chicago (or Detroit) and Houston (or Dallas) all at the same time," said Peter Beutel, president of Connecticut-based Cameron Hanover. "If it is cold in the Great Lakes and upper Midwest, the Northeast or New England and in Texas, then the gas market has a real reason to get excited. That kind of cold is certainly at least two months away."
Looking forward, Stephen Smith of Stephen Smith Energy Associates said he believes the seasonal bottom for natural gas futures prices is already in and that the downward pressure on prices will likely alleviate this fall.
"Record summer heat has reduced the current gas storage surplus to roughly 150 Bcf below year-ago levels," he said. "In addition, this year's storage capacity is roughly 160 Bcf higher than year-ago levels. The net effect should be less downward pressure on gas prices this fall."
Smith added that gas production growth appears to be slowing. "Our supply/demand balance for 2011 looks better than 2010. We expect average 2011 gas prices to be up about 5-10% from 2010."
©Copyright 2010 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.