November natural gas continued to come under selling pressure Wednesday as forecasts of early snow in the East as well as actual accumulations in the Intermountain West were not enough to offset an anticipated government storage report expected to show well-above-normal injections. At the close November had fallen 6.8 cents to $3.590 and December had dropped 7.7 cents to $3.775. December crude oil fell $2.97 to $90.20/bbl.
Observers see the market under continuing pressure with ample storage and forecasts for less winter cold in populous eastern markets (see Daily GPI, Oct. 25). “It depends on how it materializes, but that would be the thought that if weather demand doesn’t materialize, then this [market] could get quite a bit lower,” said Kyle Cooper of IAF Advisors in Houston.
Cooper also said he didn’t see any underlying rebirth of industrial demand and exports of LNG were a long way off. “Cheniere [Partners] did just sign a deal for about a half Bcf per day but no molecules are flowing and that is years into the future.”
In spite of the day’s decline others see a positive tone with the arrival of early snow at eastern points. “At the same time, though, it was impossible to mask the excitement that accompanied predictions of the season’s first snowfall in the Northeast. This is significantly earlier than normal for us to see temperatures cold enough to generate snowfall,” said Peter Beutel, publisher of Daily Oil Hedger. “Of course, once it has done that, it is difficult to go back mentally. Winter will officially be here as soon as any snowfall has accumulated.”
Beutel cautioned that Thursday’s Energy Information Administration (EIA) inventory report may put the skids on any snowfall-generated optimism. “We could see everything come crashing back to earth after this week’s EIA underground storage report. These figures are traditionally bearish, and it is difficult to try to imagine draws given the amount of gas being produced by some of the production companies out there. Shale gas is here to stay, and it has changed the natural gas business forever. Production is still ample and demand remains depressed by the economy. Regardless of this week’s EIA underground storage report, prices should have a hard time sustaining themselves at higher levels.”
Last year 74 Bcf was injected into storage and the five-year average is a 47 Bcf increase. For the week ended Oct. 21 calculations show injections well above both figures. Ritterbusch and Associates is looking for an increase of 92 Bcf and Kyle Cooper expects a build of 87 Bcf. A survey of 26 traders and analysts by Reuters revealed a sample mean of 84 Bcf with a range from 65 Bcf to 111 Bcf.
Others also are looking for another stout build in Thursday’s gas storage report. “[F]rom a small sampling of forecasts we’ve seen so far, we think the consensus expectations for Thursday’s DOE [Department of Energy] storage report may be somewhere in the vicinity of 90-92 Bcf, somewhat above our own model’s forecast for an 82 Bcf refill,” said Tim Evans, analyst with Citi Futures Perspective in New York.
Such a large build from another viewpoint is bullish for prices, he said. “A net injection on that order of magnitude would be bearish compared with a 74 Bcf date-adjusted increase from last year as well as the 47 Bcf five-year average. In a sense, though, the higher the expectation, the more bullish it is for prices, since it suggests the market may have already discounted a bearish outcome. This creates more room for either a supportive smaller-than-expected build in the storage data itself or a ‘buy the news’ reaction once the data is released.”
One piece of news traders weren’t buying is any impact from lumbering Hurricane Rina. In its 5 p.m. EDT Wednesday report the National Hurricane Center (NHC) said Rina was 170 miles south-southeast of Cozumel, Mexico and was holding winds of 85 mph. It was moving to the northwest at 6 mph, and NHC projections had it moving to the northwest, entering the southeastern Gulf of Mexico and then veering to the east toward Florida.
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