Despite yet another attempt to scout lower prices for the move, near-month natural gas futures once again were contained within their recent trading range as the January contract found support down at $5.500 and ended up closing Thursday at $5.548, down 7.1 cents from Wednesday’s close. For the bulls, a somewhat supportive 124 Bcf withdrawal ended up only being good for a short-lived knee-jerk higher to $5.754 during morning trade.
Once again, most energy eyes were on the crude futures market, which kept declining almost in defiance of the news a day earlier that OPEC was making a record output reduction (see Daily GPI, Dec. 18). After putting in a four-and-a-half-year low for front-month crude prices on Wednesday, January crude on Thursday dropped $3.84 to close at $36.22/bbl, which is the lowest a front-month contract has settled since early April 2004.
Prior to the 10:35 a.m. EST release of Energy Information Administration (EIA) gas storage data, traders had been looking for a pull of 112 Bcf, according to the 22 analysts surveyed in a Reuters poll. The actual figure came in at a bullish 124 Bcf, but prices rallied only modestly. Prior to the release of the data, January futures were trading at $5.560. Once the figures were available, prices jumped to $5.754 before pulling back.
“The net withdrawal was higher than generally expected, nearer the top end of the range of expectations,” said Tim Evans, an analyst with Citi Futures perspective in New York. “It was still slightly below the 128 Bcf five-year average for this week of the season, but was encouraging in that it suggests a somewhat tighter balance than in the two prior [weeks], which both featured misses on the bearish side.”
Risk managers reported little interest in using the price movement to initiate hedge positions. “We haven’t put on any [short] positions and are actually liquidating some short hedges,” said a Denver trader. He added that his company still had some winter put options in place, and “some [producer] clients are more aggressive with calendar 2009 positions utilizing collars,” but no one was initiating any new short hedges.
While the industry’s storage expectations going into the report proved to be too small, weather data pointed to withdrawals that should exceed averages. The National Weather Service reported that accumulations of heating degree days (HDD) for populous energy markets were above normal for the week ended Dec. 13. New England had 237 HDD, or six more than normal, and New York, New Jersey and Pennsylvania recorded a frosty 227 HDD, 13 more than normal. Ohio, Indiana, Illinois, Michigan and Wisconsin shivered under 278 HDD, or 35 more than normal.
Cold weather pounding the Midwest and Ohio Valley the week prior was instrumental in the large withdrawal, but weather bulls may have a hard time with next week’s report. The National Weather Service forecasts below-normal accumulations of HDD for the week ending Saturday. New England is expected to have 197 HDD, or 51 fewer than normal, and New York, New Jersey and Pennsylvania are slated to have 177 HDD, or 52 fewer than normal. The Midwest from Ohio to Wisconsin is forecast to have 243 HDD, or 17 fewer than normal.
Moderating temperatures would certainly have a market impact. “If we hit normal temperatures, this market will test the $5 level,” the Denver trader said.
Despite the bearish weather news, some traders are hanging their hats on the traditionally heavy consumption of natural gas over the holiday period. “Next week will be a cold Christmas, and people burn more gas when they are at home,” said a California trader.
According to the EIA, working gas in storage stood at 3,167 Bcf as of Dec. 12. Stocks are 41 Bcf less than last year at this time and 114 Bcf above the five-year average of 3,053 Bcf. The East region removed 91 Bcf while the Producing and West regions withdrew 22 Bcf and 11 Bcf, respectively.
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