After closing down 16.8 cents at $5.765 on Thursday, the natural gas futures May contract went for a run Friday morning, notching a high of $5.920 in morning trading, before settling down to close at $5.812, up 4.7 cents on the day.
“Today was kind of a reaction for the week,” said Tom Saal of Commercial Brokerage in Miami. “The market really did not have much direction today. It tried to make a new high and failed. It tried to make a new low and succeeded. It did settle higher on the day and it settled higher for the week.”
Looking ahead, Saal said he would probably look for May to make another go at $6 next week. “The market is still trying to figure out what happened this week with the big rally,” he said. “The positive thing is you settled higher on the day, that’s about all that you can say about today.”
The May contract rally took place Monday and Tuesday, logging gains of 26.4 cents and 18.7 cents, respectively, before falling 16.8 cents on Thursday.
Market-watchers on Friday also took note of the most recent Colorado State University (CSU) hurricane forecast, which predicts that this year there will be an above-average number of tropical cyclones and an above-average probability of a U.S. hurricane landfall (see related story).
The CSU forecasters’ updated seasonal scenario showed that they believe there will be 14 named storms in the Atlantic Basin this year, one more than they predicted in December.
The Energy Information Administration’s (EIA) Thursday storage report showed that 18 Bcf was taken out of the ground the previous week, which fell right in the middle of market expectations. However, the 18 Bcf draw came in stark contrast to last year’s 36 Bcf build. Stacked up against the EIA five-year average draw of 26 Bcf, the 18 Bcf withdrawal slightly narrowed the deficit compared to the five-year average to 84 Bcf. There was 1,014 Bcf of working gas in storage as of Friday, March 26. Stocks were 318 Bcf higher than last year, down from the 443 Bcf surplus peak of two weeks ago.
Projecting possibilities for next week’s storage report, Ronald Barone of UBS said he wouldn’t rule out a small net withdrawal or injection. “This — when compared against the pending 8 Bcf year-ago withdrawal — should yield limited change in the surplus upon the next EIA report,” he said. “Thereafter, we believe the surplus will be in the 300-400 Bcf range by late April, considering the latest overall temperature forecast and the next withdrawal comparison of 46 Bcf (followed by injections of 60 and 52 Bcf).”
Looking down the storage road, Barone said, “To get supplies to a very solid comfort level of 3,150 Bcf by Nov. 1, 2004, roughly 10 Bcf/d of injections are needed. We view this as relatively bearish when compared with the 11.5 Bcf/d actual injection rate last year, but relatively bullish when compared with the 9.1 Bcf/d actual 10-year average.”
Kyle Cooper of Citigroup said his initial estimation for next week’s EIA report looks for the first build of the season, likely right below 10 Bcf. Looking at futures prices, Cooper said “the weather in early April is considered quite bullish as temperatures are forecast to be well below normal in major population centers east of the Rockies. However, we remain slightly bearish with prices at these levels. At this point, we believe a very choppy market below $6 will persist until an injection pattern becomes clearer.”
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