June natural gas futures declined Thursday as traders digested an inventory report about in line with expectations but well ahead of last year's injections. A subsequent release of a government hurricane forecast did little for the bullish cause either, and prices settled at the low end of the day's trading range.
At the close June futures had fallen 10.4 cents to $4.094 and July was down 10.5 cents to $4.161. June crude oil was pummeled to the tune of $1.66 and finished at $98.44/bbl.
The Energy Information Administration in its 10:30 a.m. EDT release of inventory data reported that for the week ended May 13 natural gas inventories grew by 92 Bcf, just a bit more than the 91 Bcf widely anticipated by the market. Both Ritterbusch and Associates and Bentek Energy had forecast a build of 91 Bcf.
"The range we were hearing on the [injection] number was 75 Bcf to 100 Bcf and the consensus was between 89 Bcf and 92 Bcf, so it wasn't all that much of a surprise," said a New York floor trader.
The trader was cautious in interpreting the price slide as indicative of any major bearish trend, and prices still remain mired in a broad trading range that has been in place for months. "I think if you break below $4.10, you risk a move to $4.00, but for the moment the market seems to be digesting the report," he said. "I think unless you break $4 you are not going to see much action."
About an hour later traders received word of the National Oceanic Atmospheric Administration's (NOAA) 2011 forecast for Atlantic Basin hurricane activity (see related story). Prior to the report the buzz was that the report would show 15 named storms. "We are hearing the report will show 15 storms, eight of them will be hurricanes, and four will be severe," said a New York trader.
The actual report was right in line with expectations and prices continued their march lower. NOAA said the Atlantic Basin is likely to produce 12-18 named storms, including six to 10 hurricanes, with three to six of them Category 3 or greater. And while NOAA does not make seasonal landfall predictions, it said it is unlikely that another year of above-normal activity will leave the United States unscathed.
Even the warning that during the hurricane season a storm was likely to make U.S. landfall failed to impact prices.
Natural gas bulls couldn't buy a piece of good news. The National Association of Realtors reported April existing home sales of 5.05 million units at a seasonally adjusted annual rate, but expectations were for 5.20 million. The Conference Board reported that leading economic indicators for April fell 0.3% whereas the market was looking for a flat reading.
Wednesday's modest advance by June futures on the heels of Tuesday's 13-cent decline suggested to some a lack of motivation, if not a deeper concern about continued pursuit of the short side of the market. Peter Beutel of Cameron Hanover said traders might be "scared, to a degree, of something here. The obvious fear would be that colder weather had once again eaten into injections."
Beutel contended that Wednesday's tight trading range was evidence that short sellers are relatively few and far between. "Even though we feel that it could be colder weather that eats into this week's injection, traders were talking about hot temperatures arriving in the North and pressing air conditioners into service. Prices were up almost 6 cents earlier in the session, but there was enough selling to push quotes back to a gain of less than 2 cents.
Nonetheless, following Tuesday's losses, [Wednesday's] very tight range tells us a good deal about the state of mind among sellers. Prices fell 13.6 cents on Tuesday but added only 251 new contracts, and that implies a lack of conviction on the part of the sellers here."
Bentek has been particularly accurate as of late. Last week it forecast a build of 73 Bcf and the actual figure was 70 Bcf, and its streak of accurate forecasts continued this week. Its 91 Bcf was just 1 Bcf shy of the actual figure. In this week's report Bentek said it thought most of the risk in its estimate was for higher injections.
"The East and West regions reported strong injections, but the Producing sample was flat week-on-week, pushing the U.S. injection down. A similar gain to the East and West regions in the Producing Region would have resulted in the first three-digit build." Bentek expected an injection of 57 Bcf in the East Region, 11 Bcf in the West Region and 23 Bcf in the Producing Region.
The actual figures were a 56 Bcf increase in the East Region, 11 Bcf injected in the West Region, and 25 Bcf in the Producing Region.
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