After shrugging off the undeniably bearish news that 28 Bcf was pulled from storage last week, the natural gas futures market turned dramatically higher Thursday afternoon to notch new 6-week highs. Commercial buyers — sparked by the growing concern that prices in the low- to mid- $5.00s may not be around for much longer — were seen as the featured buyers early in the afternoon. However, when it became apparent that prices were on a tear, the speculators jumped into the buying fray, covering shorts on the way up.
The April contract gained 24.6 cents or 4.5% Thursday to close at $5.643. However the real story may have been the summer strip, which tacked on a 24.9-cent advance to average $5.768. At 80,220, estimated volume was up from the 45,000-50,000 range of the last several sessions and served to punctuate the price advance.
According to the Energy Information Administration, 28 Bcf was pulled from the ground for the week ending March 5. Not only was the withdrawal bearish versus consensus expectations in the 37-42 Bcf, the 28 Bcf takeaway also paled in comparison to the year-ago and five-year average draws of 102 Bcf and 75 Bcf, respectively. At 1,143 Bcf storage is now 407 Bcf above the year ago level and 103 Bcf below the five-year average.
“Little bit of a bearish blow [Thursday morning], but it looks like the market has shrugged it off,” noted George Leide of Rafferty Technical Research in New York. Specifically, Leide pointed to commercial buying in both the spot month and the summer strip as the supportive feature Thursday. “The market held on its test down to the $5.00 mark in February on commercial buying. Today they are supporting it on the break down to $5.30.”
Looking ahead, Leide notes that bulls’ conviction will be tested over the next couple weeks, especially on Thursdays. “There is talk out there that next Thursday will be our last net withdrawal of the season. After that, it will be either no change or injections through the rest of March.”
However the natural gas market has a knack for ignoring a bevy of data that would suggest one price outcome in order to focus on an idea that may not be based on much more than perception. Specifically, the talk in the market this spring has centered around the idea that storage injections this summer will have a difficult time keeping pace with the near record-setting builds achieved in 2003. The concern here being that even though the market appears poised to start the injection cycle with roughly 400 Bcf more gas than in 2003, the lower weekly additions could leave the market below the nearly 3,200 Bcf available at the beginning of last winter.
Not likely, counters Kyle Cooper of Citigroup. “Nuclear generation is expected to be supportive of higher injections as South Texas is back on line and Davis-Besse is ramping up…Rig counts have increased and 2004 US natural gas production is expected to rise, not fall.” On the demand side, the news also supports the market’s ability to pack gas in the ground, continues Cooper. “Manufacturing jobs are 450,000 below last year and goods producing jobs are 330,000 below last year,” he wrote in a note to customers Thursday.
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