Natural gas futures pushed higher on Wednesday amidst forecasts for colder temperatures and expectations that the United States might have recorded its first storage gas withdrawal of the winter heating season last week.
The December contract on Wednesday punched back above $4 to record the day's high of $4.037 before closing the regular session at $4.030, up 21.2 cents from Tuesday's finish.
The writing might have been on the wall for natural gas bears following Tuesday's action, when gas futures fared reasonably well given the meltdown in other markets. On Tuesday crude oil posted a $2.50/bbl loss, gold tumbled $27, the Dow lost 178 points, and the dollar rose largely in response to European financial difficulties and indications of economic tightening in Asia. In response the December natural gas contract slipped 2.7 cents to settle at $3.818.
Analysts see the market continuing on its own path more or less oblivious to the gyrations in other markets.
"This market continues to go its own way in the process of shrugging off the dramatic price swings that have been developing across a large portion of the commodity spectrum during the past fall period," said Jim Ritterbusch of Ritterbusch and Associates.
Citi Futures Perspective analyst Tim Evans said temperature fluctuations will lead the way. "The natural gas market is getting a lift off updated weather forecasts that have now tipped back toward colder temperatures in both the six- to 10-day and 11- to 15-day forecast periods," Evans said. "After a week-long warming trend (although always featuring cooler-than-normal readings in the 11- to 15-day forecast), the pendulum seems to be swinging back in the other direction now. This puts the market back on a more constructive path, where both rising seasonal demand and the forecasts for below-normal readings point in the same direction."
Turning attention to Thursday morning's storage report for the week ending Nov. 12, it appears most within the industry are expecting a small injection, while a few are calling for a small withdrawal.
In Ritterbusch's view the arrival of the second half of November will elevate short-term, one- to two-week temperature forecasts as the primary driver of price swings during most sessions. "Thursdays could provide an exception as traders adjust positions in response to the weekly EIA [Energy Information Administration] storage figures. [This Thursday] should prove no exception, and it would appear that some of the overnight strength is discounting a smaller-than-average supply injection."
Ritterbusch is looking for a build of 10 Bcf. Evans is on the record with a 16 Bcf build estimate, while a Reuters survey of 28 industry traders and analysts produced a wide range of expectations that spanned from a build of 28 Bcf to a withdrawal of 5 Bcf, with an average expectation of an 8 Bcf build.
For its part, Bentek Energy projects a net 3 Bcf withdrawal, which would bring the inventory level to 3,837 Bcf. In the breakdown, the research and consulting firm expects a 17 Bcf draw from the East Region, while the Producing and West regions add 13 Bcf and 1 Bcf, respectively.
"This first withdrawal comes three weeks earlier than the first withdrawal last year due to colder-than-normal temperatures in the West and East regions," Bentek said in its weekly storage outlook to clients. "In addition to the strong demand, depleted reservoirs in the East have already switched to withdrawal mode and continued to report large draws during this storage week. A 3 Bcf withdrawal would bring storage inventory levels to 3,837 Bcf, still 7 Bcf above last year's previous record high and 321 Bcf above the five-year average."
The number revealed by the EIA at 10:30 a.m. EST will also be compared to last year's date-adjusted 21 Bcf build for the week and the five-year average addition of 19 Bcf.
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