Mimicking last Monday’s market response to the National Oceanic and Atmospheric Administration’s bullish Atlantic hurricane forecast, July natural gas on Wednesday jumped higher following the Colorado State University (CSU) forecast team’s updated expectations (see related story). Prompt-month natural gas Wednesday reached a high of $6.450 before settling at $6.384, up 26.1 cents on the day.
The previous Monday (May 22), NOAA’s forecast pushed the June futures contract 31.4 cents higher, which was given back later in the week. The interesting fact is that both updated hurricane forecasts revealed little change from each forecasting organization’s previous expectations. Even though the updated CSU hurricane forecast was almost a carbon copy of the group’s April forecast, the timing of the new forecast made all of the difference to the market, some traders say.
“The time to blow off the forecasts is over because the season begins Thursday,” said Tom Saal of Commercial Brokerage Corp. in Miami. “The season is already here.
“Wednesday’s bump higher is a fine little reminder to all the bears out there that we are not going to have chamber of commerce weather through November 1,” Saal added. “I believe the physical traders were under the impression that the mild weather of the last month was going to be around in June, July, August, September and October. That just is not going to happen. People are forecasting different weather patterns for the summer, but these hurricanes are things that really stick in peoples’ minds.”
Saal added that hurricane concerns are now front and center. “Every time the mainstream media covers a new hurricane forecast, they show pictures of New Orleans underwater. It’s like a disaster film. I see things like that and say the market appears to be oversold,” Saal said. “I think the forecasts are a reminder that hurricanes can cause supply disruptions. With as many as they are forecasting, at least one will get into the Gulf of Mexico, and sometimes that is all it takes. The level of anxiety is high.”
Despite the rally Wednesday, Saal said he’s not sure the gains will hold. “Just like last week, I think we are going to give it all back,” he said. “We saw this movie last week.”
With natural gas settling higher Wednesday and July crude settling 74 cents lower at $71.29/bbl, some suggest that oil and natural gas may be headed on divergent price paths. Analysts note, however, that the petroleum markets may still play a role.
Commenting on Tuesday’s example with crude settling higher and natural gas settling lower, Ritterbusch and Associates’ Jim Ritterbusch said, “Despite a tendency of decoupling from the oil complex to the downside, we still look for the natural gas market to seek a fair amount of pricing direction from the oil complex into the new month while at the same time placing greater emphasis on weather factors.” He noted that the shoulder period is fast drawing to a close and the summer contracts will be forced to price in some weather premium related to the possibility of unusually hot temperatures and an active hurricane season.
Supplies of natural gas are less in question. “A bearish backdrop in the form of a large supply overhang will remain as an obstacle to sustained price rallies for weeks and possibly months to come,” said Ritterbusch. “Although last week’s storage figures indicated a modest contraction in the supply surplus, this Thursday’s figures could easily reverse this shift with a three-digit storage build possible.”
Looking towards Thursday morning’s storage report from the Energy Information Administration (EIA) for the week ended May 26, a Reuters survey of 19 industry players is looking for an injection of approximately 87 Bcf, while Golden, CO-based Bentek Energy believes a 84 Bcf injection will be revealed, putting gas in storage at 2,247 Bcf. That level of storage is 46.2% above the five-year average and 19.6% above the five-year high, the company said. Bentek expects 54 Bcf to be injected in the East region, while 16 Bcf and 14 Bcf are added to the Producing and West regions, respectively.
The number released Thursday morning at 10:30 a.m. EDT will be compared with last year’s 87 Bcf build and the five-year average injection of 90 Bcf.
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