One day after natural gas futures traders put in a meteoric trading session resulting in a spot month record settle of $14.338, the November contract, which expires Thursday, used Wednesday to teeter back and forth from positive to negative territory. Ultimately, the prompt month ended up shedding some of Tuesday’s gains by closing 29.8 cents lower at $14.04.
“We topped out at $14.49 and traded down to $13.75, so we had a pretty good sell-off Wednesday,” said Brad Florer, a broker with ICAP Energy. “I’m not sure what motivated that. I think Tuesday [increase was excessive], so once again you’ve got longs coming in, so they might as well ring the register.”
The petroleum futures complex also recorded sizeable declines Wednesday. December crude dropped $1.78 to close at $60.66/bbl, while November unleaded gasoline and November heating oil settled lower by 6.93 cents and 3.38 cents, respectively, at $1.5845/gallon and $1.8561/gallon.
December and January natural gas also dropped some of Tuesday’s gains. December settled 40.2 cents lower at $14.06, while January closed down 40.9 cents at $14.37.
As for November natural gas’ sharp $1.334 move higher on Tuesday, Florer said he believes a combination of things were in play. “Last week, the bears were not able to take out support in the $12.70 to $12.68 area,” he said. “Combine that with cooler forecasts, below normal temps and the big snow storm on the East Coast and everyone came in and reacted as if winter had just shown up. It all goes back to the fact that there are no sellers yet in this market. They are not motivated to come in and sell this thing looking for a $9-10 print. I think most of the sellers are just longs getting out until this move runs out of gas.”
Traders are eagerly awaiting the opening bell on Thursday, where the futures market will have to juggle the November contract’s expiration-day pressures and the Energy Information Administration’s (EIA) natural gas storage report for the week ended Oct. 21.
Florer said the fact that November expires Thursday is playing into the market’s direction. “Lately that’s also been a nice little short squeeze on the floor as far as people having to get out of their short futures — the majority of the market seems to be short — versus their over the counter or online platform positions,” he said.
As for expiration Thursday, Florer said he still believes there are more shorts in the market that will have to cover, which would lend support to prices. “I think the fear factor remains a bullish piece of the puzzle because I still think more people are worried about a $20 print in December or January gas than they are about seeing a $9 or $10 print. That will keep bears cautious and keep bulls — on days like Tuesday — pressing when they get an opportunity.”
Turning attention to the natural gas storage report, Florer said he is not sure it will have much impact. “I think when we get this late in October, I am not sure how important the reports really are,” he said. “If this report is off of expectations, what is it really going to end up meaning as far as ultimately how storage is going to end up. There is not enough time left to really impact the situation one way or the other if we are 10-20 Bcf off in either direction. There will be a knee jerk reaction in the market off of the report, but what is much more important for any long-term move is the weather reports and what type of winter we are looking at.”
First Enercast Financial is predicting an injection of 65 Bcf. “The bearish storage report from last week is expected to be followed by another higher-than-average injection report this Thursday,” said First Enercast Financial analyst Agbeli Ameko. “Despite 5.5 Bcf/day of Gulf production still shut in, we are expecting to run nearly 20 Bcf higher injections into storage than average.”
While the weather has been extremely favorable in reducing demand across the U.S. over the past few weeks, Ameko warned that is currently changing. “Getting back on track with normal late October weather is the North Atlantic Oscillation, which is keeping an enormous low-pressure system spinning over the Eastern half of the U.S.,” he said.
“This system is dropping the freezing line down near the Arkansas border this week. Add in a Wilma off the East Coast and you have ugly weather from Chicago to New York this week. This early cold should help us get some insight into what temperature will do to heating demand this winter.” He said he expects next week’s storage report to come in around the 30 Bcf range, signaling the end of the traditional injection season.
While noting that a Bloomberg survey of 15 analysts showed an average injection expectation of 66 Bcf for this week’s report, Citigroup’s Kyle Cooper is calling for a build between 54 and 64 Bcf. The Wednesday afternoon ICAP-Nymex storage options auction, which allows traders to hedge against or bet on the storage number, predicted a 67 Bcf injection for the week.
If the industry’s general projection of a 50 Bcf to 70 Bcf injection proves accurate, the week’s injection would dwarf last year’s 31 Bcf build and cover the five-year average injection of 45 Bcf for the week.
Â©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2021 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |