Shut-in Gulf of Mexico gas production led to a smaller-than-expected 53 Bcf gas storage injection in the Energy Information Administration’s (EIA) weekly gas storage report for the week ended Sept. 23. The report goosed November natural gas futures higher in the morning, but the contract ended up settling at $14.196, up only 9.6 cents from Wednesday. The injection was well below historical comparisons.
In its first regular session as prompt month, November natural gas futures’ immediate knee-jerk reaction was to jump higher following the report’s release. As the 10:30 a.m. EDT report hit the street, prompt month natural gas shot up 29.5 cents from pre-report levels to trade at $14.395 as of 10:32 a.m. After zigzagging during the middle part of the day, which included a peak of $14.55, November natural gas came off around 2 p.m. following slightly lower shut-in statistics from the Minerals Management Service (MMS).
“It was looking like we were picking up some steam on the upside Thursday morning,” a Washington, DC-based broker said. “When the [storage] number came out, we had the normal range of chaos for five minutes or so, where we rallied a little bit out of the number, but then fizzled. Around noon, we started moving up again substantially until around 2 p.m. EST, when it sold off.”
The broker said the sell-off could have been produced by the MMS shut-ins report, which showed a little more production returning in the Gulf of Mexico. Offshore production shut-ins dropped 48 MMcf/d from levels on Wednesday, the MMS reported. Almost 80% of the natural gas production in the Gulf, or 7.979 Bcf/d, is still offline.
“The MMS report finally showed a little bit of improvement,” the broker said. “Not a whole lot of improvement, but at least it was headed in the right direction Thursday.
“All in all, it was a very choppy day of trading, but I think the general drift higher is going to be the thing to watch,” he said. “I would still say there is a bullish bias to the market and the fact that we were able to take two decent size sell-offs, sustain them and then rally out of them I believe shows the tenor of the market still out there.”
IFR Energy Services’ analyst Tim Evans said, “Even with a smaller than expected 53 Bcf net injection to U.S. natural gas storage for last week it looks like the market was unable to avoid at least a short-term correction to its recent spike. The data itself was supportive, trimming the year-on-five-year deficit by 25 Bcf to leave just a 68 Bcf cushion. While we were clearly looking for a larger refill, we note this 25 Bcf shortfall was less than the 35 Bcf variance from the week ended Sept. 2 in the wake of Hurricane Katrina. For that matter, we saw a 25 Bcf variance over a four-week stretch in July just due to extreme summer heat.”
Evans noted that while the overall storage trend is supportive, it is not exactly record breaking. “We are still a long way from physical shortage,” he said. “Prices on the other hand, continue to imply an extreme shortage of something. If it isn’t natural gas, then perhaps it’s a lack of perspective on the real underlying fundamentals.”
Leading up to the report’s release, industry experts were a little unsure on how large the injection would be. While a portion of gas production in the Gulf of Mexico was offline last week due to damage from Hurricane Katrina and in anticipation of Hurricane Rita, demand destruction from higher prices and hurricane destruction was cited as the wild card.
A Bloomberg survey of 12 analysts was calling for an average injection of 68 Bcf, and Citigroup’s Kyle Cooper had said he was looking for a build between 54 and 64 Bcf. The ICAP-Nymex storage options auction on Wednesday revealed a consensus forecast of a 59 Bcf injection. The 53 Bcf injection came in well below last year’s 69 Bcf injection and the five-year average build of 78 Bcf.
Working gas in storage now stands at 2,885 Bcf, according to EIA estimates. Stocks are now 116 Bcf less than last year at this time and 68 Bcf above the five-year average of 2,817 Bcf. The East region led the charge by putting 47 Bcf into underground stores for the week, while the West region chipped in 6 Bcf and the Producing region posted no net change.
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