After trading mostly together over the last few weeks, natural gas and crude futures moved in opposite directions on Wednesday as November natural gas climbed 29 cents to close at $7.728 and November crude — pressured by a stout build in inventories — dropped $2.11 to close back under the $100/bbl mark at $98.53/bbl.
Crude futures, which have been fluctuating by more than a couple of dollars each day in one direction or the other, received strong inventory news from the Department of Energy on Wednesday. “The overall tenor of the report was bearish relative to expectations, with a larger than expected 4.3 million bbl build in crude stocks on a big 1.8 million b/d jump in imports,” said Tim Evans, an analyst with Citi Futures Perspective in New York.
Over on the natural gas side, bearish expectations for a large gas storage build report Thursday were tempered by reports of an early October chill, accompanied by a reminder that the 2008 Atlantic hurricane season still has two months left to run.
AccuWeather.com said Wednesday some early cold is heading into the northeastern quarter of the country. Forecaster John Kocet said that while the chilly air mass currently coming into the Midwest and Northeast will not challenge any records, it will be “quite evident that summer is definitely over.” He said the lowest temperatures over the next three days will be experienced from the Upper Midwest across Upstate New York to northern New England.
“The Upper Midwest will have pockets of below-freezing temperatures Thursday and Friday nights. Sunday and Monday the same thing may happen from northern Pennsylvania to New England,” he said.
Taking a peek at the tropics, Kocet said nothing is currently of too much concern, but things can change very quickly. “The tropical Atlantic is not dead yet. That doesn’t happen until November. Some mighty big hurricanes have occurred in October, including Hazel, Hugo and, more recently, Wilma,” he said. “By the way, Wilma was the most intense hurricane ever recorded in the Atlantic Basin with a central pressure as low as 26.06 inches!”
Kocet said there is “nothing nasty” in the Atlantic right now, but there are two areas worth watching. One is the cloud mass in the western Caribbean; the other is over the east-central Atlantic.
“Whether or not the western Caribbean system will turn into anything remains to be seen, but at the very least it will send a plume of tropical moisture toward South Florida,” he said. “This is likely to renew shower and thunderstorm activity later in the week.”
Commenting on the separate ways of crude and natural gas on Wednesday, Rafferty Technical Research broker Steve Blair said they moved more together on the day than a first glance would reveal. “Natural gas and crude markets moved in separate directions early Wednesday, but later in the day they began moving together,” said Blair. “Natural gas futures lost some of their gains in the afternoon, but still settled up on the day, while crude got hammered lower late.”
Blair said the slow return of production following hurricanes Gustav and Ike likely is helping to prop up natural gas futures (see related story). “Some concerns on some off-line pipelines in the Gulf likely helped with the rally Wednesday,” he said. “We’ll have to see how long it takes for more production to come back on tap in the Gulf…and how much doesn’t come back at all. All in all, I think the market is still very comfortable in this $7 to $8 range. I don’t see any reason for things to change.”
Taking a look at Thursday’s natural gas storage report from the Energy Information Administration, Blair said an injection in the 80s Bcf, which is what some market watchers are expecting, would be a bearish event. “If we get something in the 80s for the week ended Sept. 26, that is keeping us on target with having a pretty nice amount of gas in storage by the time the heating season starts,” he said. “That would keep me even more comfortable with my belief that futures will remain in this $7 to $8 range for a while. With 62 Bcf being injected for the similar week last year and the five-year average being a 72 Bcf build, an injection in the low 80s would be picking up ground on historical comparisons.
“Even with some reports of early cold out there, as long as we keep building up storage traders will take note of the cold, but will be less likely to act because of the gas cushion,” the broker added. “We’ve had two production-disrupting hurricanes and the market really has not moved, so a little bit of early cold in October is not likely to get this market pumped up.”
Golden CO-based Bentek Energy said its flow model is indicating an injection of 81 Bcf, which would bring stocks 6% below the five-year high and 1.4% above the five-year average. The research and analysis firm said it expects a 54 Bcf injection in the East region with the Producing and West regions contributing 14 Bcf and 13 Bcf, respectively.
Bentek noted that recording a new all-time high storage level by the end of the injection season is still within reach. “Current stocks are only 435 Bcf off the record high of 3,539 Bcf with seven weeks remaining in the injection season,” Bentek said in its weekly report. “Stocks in the East are on track with last year and the big deficit is in the producing region. If injection average 63 Bcf for the next seven weeks, stocks will be at an all-time high.”
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