Natural gas futures took a break from the downside Wednesday as near-term weather forecasts got even chillier for a number of heavy gas-usage regions in the East. January natural gas futures recorded a high of $4.324 before closing out the regular session at $4.269, up 8.9 cents from Tuesday's finish.
WSI Corp. of Andover, MA, in its six- to 10-day forecast said, "Colder-than-normal anomalies are forecast over the northwestern U.S. and most locations south and east of Minneapolis. Anomalies as cold as 9 degrees below normal are anticipated over the southeastern U.S. Warmer-than-normal temperatures are now forecast over the southwestern U.S."
As any trader knows, forecasts carry risks, and WSI cautions that "temperatures may trend colder over most of the eastern two-thirds of the country than currently forecast. While the EPO [Eastern Pacific Oscillation] and PNA [Pacific North American pattern] are forecast to remain in negative phases, medium range models suggest the AO [Arctic Oscillation] and NAO [North Atlantic Oscillation] will be the primary driver of the weather over North America next week."
"It seems some midday updates to the weather forecasts boosted futures values," said a Washington, DC-based broker. "There is a ridge that is building in out over the West, which will keep temperatures in California above average, but it will also keep the door open for cooler Canadian air to filter into the eastern U.S. It looks like a number of points in East will be below to much below normal in the near term. This first real cold bit of weather might be good for another 20-30 cents in natural gas futures. I don't know that we'll necessarily get through $4.500, but we could definitely test that price level."
That said, the broker warned that he doesn't see any real price breakouts considering the current fundamentals. "We still have as much gas as we need. No one is worried about supply anywhere," he told NGI. "I really don't see any significant bull run up to $6 or $7 unless something changes with supply. Now if Pennsylvania or New York make some adverse decisions on shale production, or somebody poisons a river, then obviously the supply picture changes and so would prices."
Taking a peak at Thursday morning's natural gas storage report for the week ending Nov. 26, the broker said he is expecting the Energy Information Administration (EIA) to report a 15 Bcf withdrawal. A Reuters survey of 21 industry players produced a 10 Bcf to 41 Bcf withdrawal range with an average expectation of a 26 Bcf pull.
Bentek Energy projects a 24 Bcf withdrawal, which would bring the inventory level to 3,813 Bcf. If Bentek's estimate is on target, U.S. storage inventories will fall below last year's level after setting new five-year highs during the past four weeks. For the week the research firm said it expects the East and West regions to withdraw 23 Bcf and 16 Bcf, respectively, with the Producing Region injecting 15 Bcf.
"The first withdrawal of the winter season was reported by EIA for the week ended Nov. 20 and storage inventories are projected to have decreased again in the week ended Nov. 26," Bentek said in its weekly storage outlook. "The West and East regions are both on withdrawal mode, but the Producing Region continues injecting. Much of the Producing Region injections is being driven by Texas storage activity, in which injections more than doubled during the past storage week."
The number revealed Thursday morning at 10:30 a.m. EST will be compared to last year's date-adjusted 2 Bcf injection for the week and the five-year average withdrawal of 37 Bcf.
Top analysts see the market as having fully discounted voluminous production from gas shale plays and elsewhere as well as a soft economy. For the moment it's all about weather and storage. "...[C]hanging forecasts and readings will tend to make the weekly EIA underground storage statistics that much more important. We are starting this season with fresh high, record amounts of gas in storage, and that means that we are going to need brutally cold temperatures sustained over a number of the weeks in December and January in order to burn off the surplus," said Peter Beutel, president of Connecticut-based Cameron Hanover.
Beutel noted that a stronger economy would help "although no one is currently suggesting that as a likely possibility. It is certainly possible, although it feels rather remote right this minute."
In the short term prices may weaken. "We still may need to see prices ease back towards the $3.90-4.00 level in order to generate fresh buying interest from end-users. We suspect that there is decent buying above $4.00 and very good buying beneath that. Anything beyond that is likely to need to come from changing temperature forecasts," Beutel said.
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