December natural gas futures slipped lower Thursday following the 10:30 a.m. EST release of Energy Information Administration (EIA) data showing an increase in natural gas inventories somewhat greater than what traders were looking for. However, the blip lower proved to be short-lived as the front-month contract rebounded higher before closing at $3.649, down just three-tenths of a penny from Wednesday’s regular session close.
For the week ended Nov. 4, the EIA reported an increase of 37 Bcf in storage, and December futures seized on the figure as reason to trade lower. Shortly after the figure was released December fell as low as $3.612. From there, however, the contract bounced higher, recording a high of $3.703 just before 1 p.m. EST before moving lower to close out the regular session.
Traders and analysts were looking for smaller builds before the data was released. “We were looking for an increase anywhere from 33 Bcf to 35 Bcf, so the number came in a little bearish,” a New York floor trader said. Kyle Cooper of Houston-based IAF Advisors forecast a build of 35 Bcf, and a Reuters poll of 27 industry players showed a 33 Bcf average with a range of 18-48 Bcf. Industry consultant Bentek Energy estimated a 34 Bcf increase.
Citi Futures Perspective analyst Tim Evans, who had been expecting a 22 Bcf addition, said he believes a trend could be forming. “The 37 Bcf net injection was bearish relative to expectations, as well as the 22 Bcf five-year average benchmark,” he said. “In addition to showing storage at a higher level than anticipated, it also suggests a weaker supply/demand balance, which could carry forward into weaker storage results on an ongoing basis.”
Teri Viswanath, an analyst with BNP Paribas, warned that the increased gas supply could put further downward pressure on gas prices. “Given the magnitude and duration of the current sell-off, the market has fallen below our initial anticipations,” she wrote in a research note. “Although we mostly anticipated strong domestic supply growth, we underestimated the impact of the loss of electric power demand in the West. This loss, stemming from a fall in air conditioning demand, contributed to yet more supplies accumulating in storage, thus exacerbating the market’s imbalance.”
Viswanath said with U.S. balances roughly 2 Bcf/d looser than earlier projections, she now believes an inventory surplus will emerge this month and will likely carry through most of 2012. “In our view, this inventory hang-over largely reduces the scope for a winter price rally and potentially, opportunities for gas prices to firm-up materially in 2012,” she wrote.
Traders reported that activity was relatively light Thursday following the release of the figures. “We didn’t see all that much happen; volume was not that big, and the spreads stayed pretty constant,” the New York floor trader said. “With today’s lower trading, $3.60 now becomes the new support zone. There could be some significant [sell] stops below there.”
According to EIA data, working gas in storage stood at 3,831 Bcf as of November 4. With the robust injections of the past few weeks, current stocks are now only 6 Bcf less than last year at this time, while standing 215 Bcf above the five-year average of 3,616 Bcf. For the week, the East Region added 16 Bcf and the Producing Region added 15 Bcf, while the West Region rose by 6 Bcf.
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