The market took Thursday morning’s natural gas storage report in stride as the Energy Information Administration (EIA) reported that 43 Bcf was injected for the week ended Aug. 24. October natural gas futures, in its first regular session action as front month, rallied in the late morning to $5.770 and closed out the day at $5.635, up 5.4 cents, but traders were not convinced the move higher had much if anything to do with the injection figure.
Following the $5.770 tick just before noon EDT, the prompt month moved lower into the afternoon. The day’s range of $5.540 to $5.770 and the skittish price moves during the day reinforced the belief that the market is very unsure of its current predicament. With almost 3 Tcf in underground storage as of Aug. 24, the bears have ample fuel to claim control, but with three full months left in the official 2007 Atlantic hurricane season, the bulls have the fear card that a hurricane could yet get into the Gulf of Mexico still firmly tucked in their back pocket.
“We have a lot of gas in the ground and the injection level was expected, so I don’t see any reason for this little run-up from $5.540,” said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. “We do have three waves that are being monitored for storm formation. One is going into Mexico almost immediately and the other two don’t look that impressive. Maybe later on they will develop into something, but I don’t think they are going to factor into trading this week, maybe Monday, but I’d advise taking a wait-and-see approach.”
As for resistance levels, Kennedy targets $6.680, with $6.750 above that.
The fear card could be played by bulls in the coming days as an “active African wave train” has formed, according to AccuWeather.com. “There is a lot of potential here, folks, but quite obviously there are no tropical storms in the Atlantic Basin at the present time,” said John Kocet, a senior meteorologist with AccuWeather.com. “The African wave train is alive and well, but notice the abundance of dry air across the central Atlantic. That seems to be hindering any tropical development way out there. The entirety of hurricane forecasting might be compared to big game hunting. Just watch and wait, and make sure you don’t miss when the pressure is on. We’re playing the waiting game right now.”
Weather bulls could see slimmer storage injections in next week’s storage report for the week ended Aug. 31. The National Weather Service (NWS) reported for the week ended Aug. 25 a modestly supportive accumulation of cooling degree days (CDD) in major energy markets. New York, New Jersey and Pennsylvania tallied 27 CDD, or 12 fewer than normal, but the industrialized Midwest suffered through 62 CDD, or 22 more than normal. For the week ended Sept.1 the NWS predicts 57 CDD, or 26 more than normal, for the Mid-Atlantic states above and 49 CDD, or 17 more than normal, for the Midwest.
Supportive storage injection figures aside, some traders are looking for lower prices. On the floor of the New York Mercantile Exchange the talk is of a $4 handle, reminiscent of the late September 2006 posting when spot futures traded as low as $4.05 on Sept. 27. Traders note that the April 2008/May 2008 futures spread may be an indicator of lower prices to come. Typically, the April contract will trade higher than the May and the April will normally settle well over the May as well. Presently, not so.
On Thursday, April settled 1.5 cents below the May contract. “The April/May spread has May over [April] now, but usually that would be a sale, buying the April and selling the May,” said a New York floor trader. He added that April usually expires 20 cents over the May, “but nobody will touch it. That tells me that there is one more shot downward for the winter contracts.
“For the April contract to stay under the May you really have to see a sell-off in the winter strip. How long can prices stay up here? There is a record amount of gas in storage and there are no heat waves or hurricanes.” he said.
The 43 Bcf storage injection was smaller than last year’s 49 Bcf injection and the five-year average build of 61 Bcf. Golden, CO-based Bentek Energy said its flow model was expecting an injection of 48 Bcf, while a Reuters survey of 23 industry players just missed with an average expectation of a 42 Bcf build.
As of Aug. 24, working gas in storage stood at 2,969 Bcf, according to EIA estimates. Stocks are now 71 Bcf higher than last year at this time and 315 Bcf above the five-year average of 2,654 Bcf. In the East region, stocks were 136 Bcf above the five-year average following net injections of 44 Bcf. The East region injected 44 Bcf and the West region deposited 1 Bcf, while the Producing region actually recorded a 2 Bcf withdrawal.
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