Shrugging off the sluggishness of the last couple of sessions, July natural gas on Wednesday hit the ground running after gapping higher to open. The prompt-month contract put in a high of $6.660 before closing at $6.590, up 42.7 cents on the day. Attention now turns to Thursday’s fresh storage news.
“I don’t know of any event that created this run-up, but I would think that it reflects in part some expectation of increased cooling degree days over the next several days, which is a large departure from where we have been recently,” said a Washington, DC-based broker.
He added that Tropical Depression Alberto, which had reached tropical storm classification earlier in the week, also probably got traders thinking. “Even though Alberto fizzled, it is clear that we are now out of the shoulder season and firmly into the summer,” he said. “Summer has heat and uncertain weather, so we have a situation where the market can’t bring itself much lower. Near-month natural gas futures still have a significant discount to both winter gas prices and current liquid prices. Until you get liquids prices to move down substantially, you are still going to have some reason to support the current natural gas prices.”
However, the broker said that in spite of Wednesday’s significant price increase, from a technical point of view the market still has not broken out of the “very tiny range” of the last three or four sessions. “The prior three days were just ridiculous in terms of range,” the broker said. “You would open the day, do whatever you did — which wasn’t much — and wind up almost exactly back where you were. I think we are now starting to see some intent on finding directionality. Given the time of year, I think the bottom could already be in place and higher prices are ahead. This is not a new position for us.”
Despite the increase Wednesday, the broker said natural gas futures still need to break out of the range. “Wednesday’s action didn’t quite get us high enough,” he said. “We need to get over $6.82 to be seeing some effort at moving higher. If we accomplish that, it is very possible that prompt-month natural gas could get all of the way back to $8.00-8.25.”
Forecasters are calling for warmth and humidity to hit eastern locales once tropical storm factors dissipate. “Once a frontal system from the Midwest clears the coast and any effects from Alberto depart, summer warmth and humidity will surge into the Northeast. Afternoon temperatures have a shot at 90 degrees all the way from Augusta, GA to Augusta, ME,” said Elliot Abrams, AccuWeather meteorologist. He noted that a weak cool front could dent the warmth from Pennsylvania north on Monday, but more summertime warmth and humidity will be dominant next week.
Although Alberto’s impact on Gulf production facilities was minimal, the drumbeat of tropical weather continues. AccuWeather has identified four tropical waves extending from the west coast of Africa to the Caribbean, and “though none of these waves may turn into anything, their presence is very significant. The watch and wait game has started,” the forecaster warned.
Analysts are more focused on upcoming hot weather. “The relative strength in the natural gas appears related to hotter temperature forecasts that are expected to develop across most of the Midcontinent during the coming days and which could last through next week,” said Jim Ritterbusch of Ritterbusch and Associates.
Even with the forecast hot weather, Ritterbusch is not ready to concede market momentum to the bulls. In the natural gas market, he is not yet viewing the relative support of the past couple of sessions as a bullish indicator. “The market will still need to negotiate through Thursday’s gas storage figures if this week’s support is to be maintained.”
Looking towards Thursday morning’s fresh injection of natural gas storage information from the Energy Information Administration (EIA), the industry appears to be looking for a build within the 80s Bcf.
According to a Reuters survey of 24 industry players, 88 Bcf was expected to have been deposited in underground stores during the week ended June 9. The ICAP derivatives auction held after the close of Nymex floor trading Wednesday revealed a consensus build expectation of 83.4 Bcf.
Golden CO-based Bentek Energy projects a storage injection of 81 Bcf, which would result in 2,401 Bcf of gas in storage. The company pointed out that if achieved, 2,401 Bcf is 38.1% above the five-year average and 16.1% above the five-year high for this time of year. Bentek Energy is expecting a 48 Bcf injection in the East region, a 22 Bcf build in the Producing region and an 11 Bcf addition in the West region.
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