Coming in below most industry estimates, the Energy Information Administration’s (EIA) bullish natural gas storage report Thursday morning kick-started the sputtering August natural gas futures contract. Sparked by the first bullish report in many weeks, the prompt month rallied to close at $6.152, up 22.1 cents on the day. The rally saw heavy volume as 103,180 contracts changed hands.
While many in the industry were looking for an injection in the neighborhood of 85 Bcf, the actual amount of gas put into underground storage for the week ended July 16 came to 72 Bcf. The build fell short of last year’s 77 Bcf injection, but surpassed the 69 Bcf five-year average. The injection also fell way short of the 109 Bcf and 108 Bcf injections from the prior two weeks.
The futures prompt month soared in response to the report, climbing a whopping 33 cents in the first 20 minutes following the release to set the day’s trading high at $6.22. The move eliminated the $6.00-6.03 resistance level, which has acted as a ceiling over the past week. September futures gained 23.1 cents on the day to close at $6.20.
“The natural gas market received a decisive push higher off the 72 Bcf injection to natural gas storage for last week, a figure that was well below the reported 89 Bcf consensus survey as well as the 82 Bcf Nymex auction,” said Tim Evans of IFR Energy Services. “Short covering has become the order of the day. Before we become too bullish, however, we should note how the refill was still 3 Bcf more than the five-year average and that the big picture, illustrated by the year-on-five-year comparison, still shows a bearish trend from a late winter deficit to the current surplus. The close balance in the data for last week notwithstanding, this is not the kind of thing that great bull markets are made of.”
Touching on the soon-to-be prompt month, Evans said September futures have embraced their upside breakout with “great enthusiasm,” noting that he sees intermediate-term resistance in the $6.30-6.35 range, ahead of the $6.50 peak from July 6.
“Given what are really lackluster fundamentals, it is possible that the only way the market is able to correct higher is in this kind of dynamic, short-term technical spasm,” Evans said. “On the downside, failed resistance in the $6.00-6.07 range and the $5.91 low for the session define the short-term pivots, with the $5.80 low from Monday coming under renewed attack if the higher levels fail.”
Evans said that while he expects the market to head downward again, it might take a couple of days to make the transition.
Southwest Securities’ John Gerdes in a research note said that the 72 Bcf injection was below his estimate of 84 Bcf and below the consensus estimate of an 88 Bcf injection. “After normalizing for weather, this week’s injection implies a 0.9 Bcf/d undersupplied market versus the same week last year and 1.0 Bcf/d oversupplied market vs. the seven-year average.”
Working gas in storage now stands at 2,227 Bcf, according to EIA estimates. Stocks when compared to last year’s tally fell 5 Bcf from the prior week to stand 246 Bcf higher than last year at this time, while the surplus to the five-year average inched up 3 Bcf to stand 57 Bcf above the five-year average of 2,170 Bcf.
The East region led the meek injections by contributing 57 Bcf, while the Producing and West regions chipped in 10 Bcf and 5 Bcf, respectively.
“The EIA report was indeed below our expectation as the West was indeed much lower than our estimate,” said Citigroup’s Kyle Cooper. “The Producing region was also beneath our projection and that led to the overall number being quite a bit lower than our guess. It was clearly bullish in comparison to expectations.” Cooper was calling for a build between 78 and 88 Bcf.
However, he noted that from a seasonally adjusted standpoint, the report was not considered overly bullish. “It was actually still above our historical regression model and in this temperature range, injections usually fall below that model,” Cooper said. “We are quite disappointed with our estimate as there were some indicators that the injection may be that low.”
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