Giving back almost all of the 18.7 cents it had gained on Wednesday, the May futures contract Thursday afternoon retreated 16.8 cents to close at $5.765. The decline ended a hectic day that saw the prompt month challenge the $6 mark, notching a high of $5.99. However, it appeared overhead selling prevented the market from breaking above the psychological $6 level, sending prices lower.
Looking to Friday, it is possible that traders might take profits and lighten their long positions ahead of the weekend.
While landing right in the middle of market expectations, the 18 Bcf withdrawal reported by the Energy Information Administration (EIA) Thursday came in stark contrast to last year’s 36 Bcf build. Stacked up against the EIA five-year average draw of 26 Bcf, the 18 Bcf withdrawal slightly narrowed the deficit compared to the five-year average to 84 Bcf. There was 1,014 Bcf of working gas in storage as of Friday, March 26. Stocks were 318 Bcf higher than last year, down from the 443 Bcf peak of two weeks ago.
“Natural gas prices ended weaker as both a lower than expected storage withdrawal and a weak petroleum market pressured prices,” said Kyle Cooper of Citigroup. He was expecting a withdrawal between 23 and 33 Bcf. “We had lowered our estimate. We obviously did not lower it enough.”
Once again, the withdrawals were led by the East region, which saw a 33 Bcf drop in working gas levels for the week. The Producing and West regions countered with a 15 Bcf net injection. In the East region, stocks were 57 Bcf below the five-year average, while stocks in the Producing region equaled the five-year average of 380 Bcf. Stocks in the West region were 27 Bcf below the five-year average after a net addition of 7 Bcf.
Looking down the storage road, Ronald Barone of UBS, said, “To get supplies to a very solid comfort level of 3,150 Bcf by Nov. 1, 2004, roughly 10 Bcf/d of injections are needed. We view this as relatively bearish when compared with the 11.5 Bcf/d actual injection rate last year, but relatively bullish when compared with the 9.1 Bcf/d actual 10-year average.”
Commenting on the futures price rally experienced earlier in the week that ended Thursday, Craig Coberly of GSC Energy said, “Gas completed the five-wave rally from the Mar 25, $5.34 low and has started its correction. This corrective process is likely to last a few days (3-5) and be followed by another nice rally.”
Coberly noted that the Fibonacci retracement percentage levels identify $5.67, $5.59 and $5.47 as likely support and objective levels. If the decline really gets serious, the long-term Gann support line should provide final support, he said, adding that the support line is currently in the $5.00-5.03 area.
“When the corrective decline is complete in a few days, the next rally phase will begin,” Coberly said. “At the present time, I expect it to move into the $6.40-6.50 area.”
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