Coming in above most industry expectations, the 89 Bcf storage injection reported Thursday by the Energy Information Administration for the week ended July 7 triggered an initial drop in August natural gas futures, but the market then rebounded in a big way on the back of August crude, which recorded yet another record-setting day to the upside. Prompt-month natural gas reached a high of $6.180 in afternoon trading before settling at $6.129, up 34.7 cents from Wednesday.
August natural gas gapped higher to open Thursday at $5.860 following Wednesday’s overnight Access trading session. After trading at $5.890 just prior to the storage report’s 10:30 a.m. EDT release, the prompt month plummeted 17 cents in the minute following the report to trade at $5.720. However, August natural gas pushed higher for the remainder of the session in sympathy with the overwhelming strength from the petroleum markets.
With Middle East tensions boiling, a Nigerian oil pipeline explosion and a Venezuelan refinery fire, August crude on Thursday notched a new all-time record high of $76.85/bbl before settling at $76.70/bbl, up $1.75 on the day. Likewise, unleaded gasoline and heating oil also had big days. August unleaded gasoline closed 4.54 cents higher at $2.3013/gallon, while August heating oil climbed 6.15 cents to finish at $2.0799/gallon.
“The products are strong as hell. Unrest in the Middle East and the loss of a 900,000 bbl/d Venezuelan refinery to fire helped launch a major breakout in crude futures,” said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. “I think crude is going to go to $90+/bbl. Even more interesting is the fact that we had a major breakout to the upside in heating oil in July, which is a rarity. It is what it is.”
Kennedy said it was pretty obvious that the strength in petroleum futures had an impact on the natural gas arena. “I definitely would call the massive day in petroleum ‘background noise’ for the natural gas futures complex,” he said. “You had rampant short-covering on the crude side, so it is theoretically possible you saw some short-covering from funds on the natural gas side. Despite, the 34.7-cent jump in August natural gas, I still say we are seeing a bear market rally. We are not even approaching the long-term downtrends yet, but there may be a little more upside to this rally yet. Last week’s $5.470 low was not a bottoming formation at all. It still needs a lot more work.”
Lost in the noise was the fact that the 89 Bcf storage injection was slightly larger than most had expected. “The number came out, and it was higher than expected, so traders sold this market off,” said Tom Saal, also of Commercial Brokerage Corp. “However, the underlying fundamentals of the market look fairly supportive. We are finally getting some heat in some gas consuming regions, and I think cash market prices are up as a result of that.”
As to whether the latest push higher is another round of short-covering or some new buying, Saal said it is too early to say. “I am going to have to wait and see on that one,” he said. “You do have quite a few people who are short, so there is definitely some short-covering in there. If the cash prices can get back up above the index levels of the first of the month because of the heat, then I think we have a different picture for the second half of the month.”
Industry predictions for the storage report appeared to be in the 75-85 Bcf injection range. A Reuters survey of 22 industry players had been expecting an average injection of 76 Bcf for the week, while Golden, CO-based Bentek Energy was looking for an 84 Bcf injection. The ICAP derivatives auction held after the close of Nymex floor trading Wednesday revealed a consensus build expectation of 80 Bcf. The actual injection was 1 Bcf greater than last year’s 88 Bcf build and 10 Bcf smaller than the five-year average injection of 99 Bcf.
As of Friday, working gas in storage stood at 2,704 Bcf, according to EIA estimates. Stocks are 426 Bcf higher than last year at this time and 581 Bcf above the five-year average of 2,123 Bcf. The East region injected 55 Bcf for the week, while the Producing and West regions added 20 Bcf and 14 Bcf, respectively.
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