After venturing higher in early morning trade on Thursday, the January natural gas futures contract knee-jerked lower following the news from the Energy Information Administration (EIA) that 23 Bcf was withdrawn from underground storage for the week ending Nov. 26. However, the bearish sentiment from the report proved to be no match for the eastern freeze, which pushed the front-month contract higher to close at $4.343, up 7.4 cents from Wednesday's regular session close.
Heading into the 10:30 a.m. EST report, January futures had pushed higher to trade at $4.369, but in the minutes that immediately followed the release, the prompt-month contract slid to $4.266. After reaching the day's low of $4.197 just after noon EST, futures pushed higher for the rest of the day.
The actual 23 Bcf draw appeared to be inline with some industry expectations, while a bit on the bearish side when compared to others. A Reuters survey had been expecting a 26 Bcf pull while Bentek Energy was targeting a 24 Bcf pull.
"The 23 Bcf net withdrawal from storage for last week was in the lower part of the range of expectations, and even further beneath the 37 Bcf five-year average or our own 40 Bcf estimate," said Tim Evans, an analyst with Citi Futures Perspective in New York. "This constitutes a clear bearish surprise. Since the reporting period spanned the Thanksgiving holiday, we wonder if this may have reduced demand for gas more than anticipated."
While bearish when compared to the 37 Bcf draw five-year average, the 23 Bcf draw was bullish when compared to last year's date-adjusted 2 Bcf injection for the week.
As of Nov. 26, working gas in storage stood at 3,814 Bcf, according to EIA estimates. Current stocks are now 23 Bcf less than last year at this time, but 347 Bcf above the five-year average of 3,467 Bcf. For the week, the West and East regions withdrew 21 Bcf and 16 Bcf while the Producing Region injected 14 Bcf.
Updated weather model runs forecast a more aggressive incursion of cold air into key eastern and Midwest energy markets in the near term. "The overnight European [weather model] guidance offers more cold for more of the upcoming two-week period," Matt Rogers, president of Commodity Weather Group, said Thursday morning. "The most impressive cold is seen on the European operational in the six- to 10-day [forecast]. It favors strong below-normal eastern Midwest to East Coast temperatures and sets the stage for a potential big winter storm just beyond day 10. The European ensemble mean also shows this storm toward day 11 [Sunday, Dec 12]. Yesterday afternoon's Euro ensemble turned colder for the 11-15 day [forecast], and the recent overnight version trended colder than that. However, there appears to be enough variability to prevent as cold of a repeat as the six- to 10-day."
Heading into Thursday's session, traders using algorithm-based trading programs had switched to the buy side of the market. They saw Wednesday's strength as primarily weather-driven but note that funds and managed accounts aren't interested in pressing the short side of the market at a time when seasonal demand for natural gas is at its strongest.
"Weather forecasts came out and we are expecting a 15- to 20-degree drop here in New York," said a New York floor trader. "It looks like the black box algorithmic traders are squeezing out the weak shorts."
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