September natural gas futures fell hard Thursday following the release of bearish inventory figures and unsuccessful attempts to fend off aggressive selling in equity and oil markets. At the close September natural gas had fallen 14.9 cents to $3.941 and October had dropped 14.7 cents to $3.955. September crude oil imploded by $5.30 to settle at $86.63/bbl.
In its 10:30 a.m. EDT inventory report the Energy Information Administration (EIA) said working gas in storage had increased 44 Bcf to 2,758 Bcf, about 6-7 Bcf more than what the industry was expecting. The increase raised the five-year storage deficit by 3 Bcf to 68 Bcf, but it narrowed the deficit to last year by a robust 15 Bcf to 186 Bcf.
As Phil Flynn of PFG Best in Chicago put it, “Last week we had record hot temperatures, record electricity usage, along with some tropical waves, and if that is not going to keep you in the $4s, I don’t know what is.”
The 44 Bcf increase marks the fourth consecutive week that injections have exceeded industry estimates and highlights the most recent estimate by the EIA in its Short-Term Energy Outlook calling for average marketed production in the U.S. in 2011 to rise by a hefty 5.8% to 65.4 Bcf/d.
Natural gas traders also found it hard to ignore the freefall taking place on Wall Street. The Dow Jones Industrial Average plunged 513 points to 11,384, the steepest decline since December 2008.
“There’s a lot of uncertainty here,” said Howard Silverblatt, senior index analyst at Standard & Poor’s, in a MarketWatch.com report. He listed as an emerging concern the idea that corporations might have to scale back expectations for the third quarter. “If the Street [earnings] numbers are too high, with the third quarter projected at record levels, if that has to be taken down at the last minute, the last remaining support beam is being pulled away,” he said.
Going into the EIA report estimates of the figures were tightly bunched. Last year at this time a thin 29 Bcf was injected, and the five-year average is for a build of 47 Bcf. Industry estimates for the week ended July 29 fell between the two. A Reuters poll of 25 analysts showed an average of 37 Bcf with a range of 23 Bcf to 45 Bcf. Ritterbusch and Associates forecast a 37 Bcf build, and industry consultant Bentek Energy, utilizing its North American flow model, calculated a 38 Bcf increase.
Pick your poison, but depending on how much gas is needed to start the traditional Nov. 1 heating season, builds in the 30-40 Bcf range probably aren’t going to provide a sufficient starting inventory. With 13 weeks of injections left, it would require a 95.5 Bcf weekly average injection to lift the present inventory of 2,758 Bcf to 4,000 Bcf. To reach 3,750 Bcf, 76.3 Bcf builds per week are needed, and for a 3,500 Bcf stash by the end of October 57.0 Bcf a week would be necessary.
Falling industrial demand might help. EIA reported Tuesday that the preliminary estimate of industrial consumption of natural gas for May had fallen to 534 Bcf, the lowest for any month so far this year. It was slightly ahead of the May 2010 figure of 527 Bcf.
Analysts saw the market at short-term technical support, but longer term the outlook is not so positive.
“We have good technical support above $4.00, and prices are oversold and into the lower red Bollinger Band. Those factors should give us a rally, and it will have extra power if we get a build [Thursday] less than expected,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm, before the numbers were released. “But longer term, unless we get sustained triple-digit heat in Dallas, Chicago and New York (or Minneapolis and Boston or Detroit and Philadelphia) simultaneously, or unless we have a direct tropical hit on production centers underneath Texas or Louisiana, prices are only likely to tease bulls with promises they cannot keep.”
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