Breaking out above last Wednesday’s $7.430 contract high, July natural gas futures — assisted by strength in crude and a hot weather forecast — reached a high in Wednesday’s regular session of $7.500 before settling at $7.441, up 21.3 cents on the day.
“We finally pushed it up through that $7.47 I’ve been looking for,” said Brad Florer, a broker with ICAP Energy. “It wasn’t a real rousing close, but I just think there are a lot of conflicting feelings and fundamentals out there. The major driver on this whole thing is ultimately that people are scared there is going to be a spike in crude or heating oil that will drag us right up with it. I don’t think there are a lot of people who are willing to sell into this natural gas futures market with any enthusiasm.”
Turning attention to the storage situation, Florer said the surplus in storage is the only thing keeping natural gas futures grounded. “The only thing that is keeping this market from becoming a runaway is the fact that we have tons of gas in the ground,” he said. “Rational thought out there and people who have been in this market a while look at that and have a hard time getting onboard with this rally. While there is a definite lack of sellers in this market because of fear of crude spikes, there is also the lack of big time bulls because of the amount of gas we have in the ground. It is one of the weirdest times I’ve ever seen out here.”
Florer noted that what ultimately drives markets is fear and where the most pain is. “I think right now the fear is upside, so I think we will continue to see that be the line that is followed until that psychology changes,” he said.
Warmer-than-normal weather in a number of high demand regions of the U.S. has been helping to keep futures aloft.
“Natural gas is such a weather market,” said a Washington, DC-based broker. “I think forecasts will keep traders from selling this market aggressively at least until next month.”
The National Weather Service’s (NWS) six-to-10-day forecast released Wednesday calls for above normal temperatures across a broad swath of the U.S. Warm temperatures are expected from as far west as the Colorado/Utah border to West Virginia and into New York and New England. The above average readings are also forecast from as far north as Michigan to central Texas.
Weather 2000 said that on a national basis, it has already been a warmer than normal June. “In the central corridor of the nation, locations like Little Rock, Oklahoma City and Chicago have been consistently warm without a single below normal day all month, while Houston, Dallas and St. Louis have only eked out one barely below normal day,” the forecasting company said. “The warmth has also spread northward and eastward where northern-tier locations (like Green Bay, Detroit and Syracuse) accustomed to some [heating degree days] in the month, are an uncanny four to five standard deviations warmer than normal for June!”
Worldwide petroleum demand continues to weigh on traders’ thoughts. Shrugging off news of an oil output hike by the Organization of Petroleum Exporting Countries (OPEC), July crude climbed as high as $56.75/bbl before closing at $55.57/bbl, up 57 cents on the day. OPEC said it will immediately raise its production quota by 500,000 barrels, or 1.8%, to 28 million b/d, in an effort to ease supply constraints.
“The Iranian oil minister said that raising quotas will not do any good for all OPEC nations are producing at capacity,” the DC broker said. “They can fiddle with all the quotas they want.”
Noting that the industry had been expecting the oil output bump from OPEC, Florer said, “The real question is whether they can back that up. I still think there is a lot of question in the market on whether or not they can.”
Looking towards the Energy Information Administration’s (EIA) natural gas storage report release Thursday at 10:30 a.m. EDT, the industry consensus appears to be for an injection well below historical comparisons. According to a Reuters survey of 20 industry players, the report for the week ended June 10 should reveal an 85 Bcf injection. Shooting even lower, the ICAP-Nymex storage options auction, which runs from 3-4 p.m. EDT on Wednesday, revealed a consensus forecast of a 77 Bcf build.
The actual injection number revealed Thursday morning will be compared to last year’s 95 Bcf injection as well as the five-year average build of the same number.
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