The cold front that moved into the Midwest and East last week proved to be pivotal for the natural gas storage picture as the Energy Information Administration (EIA) reported Wednesday that 8 Bcf was withdrawn from natural gas stores for the week ended Nov. 18. The first withdrawal of the season was seen as bullish when compared to a majority of the industry’s expectations. However, on weak pre-vacation volume, the prompt month closed out the short week at $11.620, six-tenths of a cent higher on the day.
As a result of the report’s 12:02 p.m. EST release, the initial knee-jerk reaction in December natural gas futures was a leap higher. The current prompt month, which expires Monday, jumped 20 cents to trade at $11.650 from the pre-report $11.450 price level. As of 12:35 a.m., December was trading at $11.550 and January natural gas was trading at $12.030. Ultimately, January natural gas closed at $12.050, down nine-tenths of a cent on the day.
“The number was a little bit bullish, but the market doesn’t really seem to want to hold it here,” said a Washington, DC-based broker. “There does appear to be a little bit of a rally now, so let’s not call the knee-jerk reaction dead just yet. We are seeing typical natural gas futures behavior where the market can be up 30 cents one minute and down 30 cents a couple of minutes later.”
The broker noted that even had the report revealed a slight injection, “you would have probably been hard-pressed to find someone willing to sell it very hard before four days of no trading, especially given where we are on the calendar where storms can blow in unannounced.”
He added that weather is key. “Right now we are bound within a range from $11.00 to $12.50 and we will have to see what we get in the way of winter weather to find out the market’s next direction. I think this thing will resolve to the upside eventually, rather than heading lower to challenge that $10.65 level, which marks the top of the original Katrina gap.”
Another take on the storage report viewed it as insignificant, no matter what it revealed. Commercial Brokerage Corp.’s Ed Kennedy said, “It was an absolutely meaningless report. The only thing we need to know about storage is that it is full. We put 3.3 Tcf in there, which is the second highest amount of gas that they have ever had in storage. The fact that they pulled 8 Bcf out instead of putting 8 Bcf in doesn’t mean a hill of beans. The only thing that matters in this market from here through the winter is what the weather is.”
He noted that weather plays such a key role because the industry is going to have to navigate the season with 3 Bcf/d or so offline due to production shut-ins. “If the winter is below normal temperature-wise, that 8 Bcf pull isn’t even going to be a blip on the radar,” Kennedy said.
Advest Inc. broker Jay Levine said the holiday was really taking its toll on market attendance and volume. With over two hours left in trading Wednesday, Levine wondered who would be left to trade as many started their exits, possibly all at the same time. “The session has been lackluster even if the daily range has been respectable,” he said.
At least there wasn’t a repeat performance of last year’s Thanksgiving week, when an erroneous storage report coincided with the December futures expiration day and pushed the screen up more than a dollar on Thanksgiving Eve (see Daily GPI, Nov. 29, 2004; Dec. 3, 2004). Disgruntled marketers, end-users and utilities ended up having to pay much more than expected for December 2004 baseload supply. The government agency revised the erroneous original 49 Bcf withdrawal to a 17 Bcf withdrawal a week later.
Most industry storage predictions were significantly off. According to a Reuters survey of 19 industry players, the range of estimated weekly storage changes ran from a 30 Bcf build to a 17 Bcf withdrawal, with the averaged estimate calling for an 8 Bcf build. Tuesday afternoon’s ICAP-Nymex storage options auction, which allows traders to hedge against or bet on the storage number, predicted a 5 Bcf injection for the week.
While the number was considered bullish in Wednesday’s market, upon historical comparison, the 8 Bcf withdrawal took on a bearish tint. The same week last year produced a 15 Bcf withdrawal, while the five-year average for the week is a withdrawal of 23 Bcf.
As of Nov. 18, working gas in storage stood at 3,274 Bcf, according to EIA estimates. Stocks are 32 Bcf less than last year at this time and 195 Bcf above the five-year average of 3,079 Bcf.
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