Choosing to respond to renewed strength in the U.S. dollar instead of a bullish natural gas storage injection report of only 12 Bcf, December natural gas futures sank back below the $7 mark in Thursday morning trade. Thursday ended up bringing the contract’s streak of higher closes to an end at four as December futures finished at $6.979, down 27 cents from Wednesday’s close.
Heading into the final report of the traditional storage injection season, the gas industry had been expecting the Energy Information Administration (EIA) to reveal a build ranging from 12 Bcf to 50 Bcf. The actual 12 Bcf injection was much smaller than last year’s 45 Bcf build for the week and the five-year average injection of 31 Bcf.
Just prior to the 10:35 a.m. EST report, December natural gas was trading at a low of $6.877. Immediately following the report, the prompt-month contract rebounded to trade at $7.050 before sinking lower once again. As of 11:30 a.m. EST, the contract was trading at $6.873.
“The storage injection was smaller than expected, but that could reflect scaled-back production due to lower commodity prices,” said Tom Saal, a broker with Hencorp Becstone Futures LC. “It looks like a lot of the commodities are coming off because of the strength in the U.S. dollar and the weakness in foreign currencies. Natural gas futures appear to be falling in an overall bearish day for commodities in general.”
Saal, who will be hosting his popular “Where’s the Market Going and What Can You Do About It?” workshop Dec. 8-9 in Miami, said that while the U.S. dollar’s status is key, it is not the only thing to watch. “There are a number of tools and strategies to help clients navigate the volatile energy futures market and a number of them will be explained in Miami,” he said. “The dollar notwithstanding, Mother Nature still rules the natural gas market this time of year. Strategy-wise, I would be looking to buy call options for my winter months. One option might be to buy a January $8.500 call option to protect yourself in case this very cold weather shows up. You could buy one for probably around 25 cents. If you think that is kind of expensive, you could also sell a January $5.750 put at 12.5 cents to help finance the purchase of the call.”
Joining Saal in Miami to host the natural gas futures trading and storage hedging workshop are Hencorp colleague Ed Kennedy and Al Bean, a partner in ACT Energy Management. Slots are filling fast, register by the early-bird deadline of Friday and save $300. Visit https://workshops.gasmart.com for more info.
Ahead of the storage report a Reuters survey of 24 industry players produced an average build expectation of 25 Bcf, but Golden, CO-based Bentek Energy said its flow model indicated an injection of 13 Bcf. As of Oct. 31, working gas in storage stood at 3,405 Bcf, according to EIA estimates. Stocks are 130 Bcf less than last year at this time and 78 Bcf above the five-year average of 3,327 Bcf. The East and West regions injected 6 Bcf apiece while the Producing region remained stationary for the week.
Traders are also monitoring a region that many had already forgotten about. Just when you thought it was safe to turn the weather focus solely to winter temperatures, Tropical Storm Paloma, the 16th named storm in the Atlantic Basin this year, was named early Thursday morning in the western Caribbean Sea near the border of Honduras and Nicaragua. According to Eric Wanenchak, a meteorologist with AccuWeather.com, Paloma is expected to intensify over the next 24-48 hours as it moves slowly to the northwest. Heavy rains are expected to continue across eastern Honduras and Nicaragua during that time, resulting in flooding and mudslides.
“The storm will turn to the north and eventually to the northeast on Friday,” he said. “Paloma could become a hurricane by the weekend as it passes through the Cayman Islands. The storm is then forecast to weaken slightly as it passes over Cuba and emerges in the western Atlantic early next week.”
According to a number of early path forecasts — including from the National Hurricane Center, Paloma is not expected to endanger Gulf of Mexico energy infrastructure or U.S. land. The storm is expected to steer east of the Florida Peninsula early next week after crossing Cuba.
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