The cash market eased nearly 3 cents on average Thursday as Midwest points on the front lines of a major cold incursion saw gains and other locations experienced small losses.
The Energy Information Administration (EIA) issued its weekly storage report and said inventories grew by 67 Bcf last week, exactly what the market was expecting. Prices dipped lower to $3.36, violating technical support at $3.40, but were able to scramble higher for a mixed close on the day. At the close of trading November had fallen 1.6 cents to $3.434 and December was up 0.5 cent to $3.781. December crude oil added 32 cents to $86.05/bbl.
“Power loads are down a bit, and we have been trading on average about 50 cents over the Hub, Tennessee Pipeline in New England, and this is a little higher than normal for this time of year,” said an eastern marketer. “First of the month [index] was a little high also, in the $3.40s, and Tennessee has been trading close to the index with some spikes higher and lower. If you look at the November [futures] contract, it has traded this month in the $3.40s, and that is not too unusual.”
He added that the spread of Tennessee versus the Henry Hub will be fairly tight [Friday’s trading]. “It will be either be low where it has been trading, or much lower.” He cited forecast highs in Boston going forward of 65, 65, 58 and 60, and “there is no super-cold weather until next weekend.”
Quotes at Algonquin Citygate were down a cent at $3.89 and at Iroquois Waddington Friday deliveries shed 4 cents to $4.00. Gas on Tennessee Zone 6 200 L dropped 4 cents to $3.98.
Points farther south and west experienced similar weakness. Deliveries on Dominion shed 3 cents to $3.42 and gas on Tetco M-3 came in a nickel lower at $3.59. Zone 6 Transco deliveries into New York were down 5 cents to $3.55.
In the Midwest points on the leading edge of a ridge of cold temperatures saw gains as a sharp drop in temperatures was forecast. Quotes on Alliance gained 6 cents to $3.69 and at Chicago Citygate Friday gas added 5 cents to $3.69 also.
AccuWeather.com predicted that the Thursday high in Chicago of 76 would drop to 50 on Friday. Milwaukee’s Thursday high of 73 was expected to plunge to 48.
Locations further south out of reach of the cold air mass were steady to lower. Next-day gas on El Paso Permian was down a cent at $3.41, and deliveries to Transwestern retreated 5 cents to $3.39. On El Paso S Mainline Friday gas was down a cent at $3.62.
Analysts observed that it was now necessary to incorporate a new mix of factors into one’s assessment of natural gas futures pricing. “Five, six, or seven years ago trying to judge the winter outlook was the major consideration traders were looking at. Now you have to incorporate some sort of thought process on what is the investor/speculator/fund or high-frequency trader community doing in the market,” said a Chicago banker. “Part of them is going to be geared toward their bias that ‘gas should go up in the winter.’
“Winter comes into play, but in a new way in today’s market versus the ‘old’ market when it was just a bunch of big egos trading at Enron, Dynegy and El Paso. Now it’s just algorithms looking for headlines. As soon as a weather report comes out, or an analyst’s report, or a Twitter feed, people are putting in orders based on that information.
“What I am looking at now is bearish fundamentals and extremely bullish Commitments of Traders data. Funds [futures only] have gotten net long for only the second or third time in the last six years,” the banker said.
Funds or algorithmic traders may have been taking a close look at the 10:30 a.m. EDT release of storage data by EIA as storage came within a whisker of a new storage record. Inventories now stand at 3,843 Bcf, and had actual figures come in a bit higher than forecast, the 3,852 Bcf high established last year could have been exceeded. That would have taken more than 76 Bcf, but IAF Advisors of Houston forecast a 66 Bcf increase, and a Reuters survey of 26 analysts had an average 67 Bcf in its forecast with a range of 55-77 Bcf. Bentek Energy calculated a build of 69 Bcf.
Tim Evans of Citi Futures Perspective saw storage as “quite high and seasonally trending higher.” His calculations showed that Thursday’s inventory report was likely to show an increase of 67 Bcf, right in line with the five-year average of 65 Bcf but well short of last year’s plump 95 Bcf injection. He suggested that the report will bring inventories close to the all-time record established last year of 3,852 Bcf, but since there’s still a few weeks left in the storage injection season, “a new record high is just about inevitable,” he said.
Using his supply-demand model Evans’ numbers show that “by Nov. 9, with storage as forecast, the total will reach a new record of 3,960 Bcf, and with perhaps another injection to follow, depending on the weather.
“While record storage doesn’t compel the market to drop, we do think this development might prompt some money managers to reconsider whether heavy long positions are warranted, and we think a moderate cycle of long liquidation could send prices down to the $3.00-3.25 area over the next few weeks,” he said in closing comments to clients Wednesday.
Consistent with his bearish outlook, Evans recommended entering the market on the short side via a sell stop at $3.72 [December] with a protective buy stop at $3.87. His objective is $3.32 on the trade. December futures traded as low as $3.712 Thursday.
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