Despite an industry-expected 73 Bcf natural gas storage injection report, natural gas futures — under the weight of record-setting storage levels — pushed lower on Friday. August natural gas recorded a low of $5.470 before settling at $5.523, down 14.1 cents on the day and 58.1 cents lower than the previous week’s close.
The Energy Information Administration (EIA) said Friday morning that 73 Bcf was injected into underground storage for the week ended June 30, which brings working gas levels to a new all-time end-of-June record of 2,615 Bcf. The previous end-of-June record of 2,553 Bcf was established in 1991.
While the injection was mostly expected by the industry, the fact that the number was not exceptionally small allowed natural gas futures to continue falling. After trading at $5.660 prior to the report’s 10:30 a.m. EDT release, August natural gas dropped to $5.550 within minutes of the storage number.
“People are referring to the natural gas futures market as much like quicksand,” said Brad Florer, a broker with ICAP Energy. “There is a relentless, slow drift lower. Nobody has any buying motivation right now. What it boils down to is there has been really no heat to speak of, no storms to threaten the Gulf of Mexico and a heck of a lot of natural gas stored underground.”
Florer said he thought the main thing keeping natural gas futures from plummeting, as opposed to slowly sliding lower, was the strength in crude futures. Although August crude dropped $1.05 on Friday to close at $74.09/bbl, it still notched a new all-time high earlier in the week. “The strength in crude has kept it from becoming a nasty break lower in natural gas,” said Florer.
He added that natural gas bears are still very cautious about selling because they know they could come in on Monday and have to deal with a hurricane. “While the bears are still in the driver’s seat, there is really no motivation on their side either,” the broker said. “I think they are ringing the register regularly on the way down, worried that the bottom could be any day now.”
Florer said the lower trading day despite a “no surprise” storage injection really was not abnormal. “With storage levels where they are, until we get a significantly lower than expected injection these reports are going to be interpreted as bearish.”
Looking at the downside, Florer said he believes the bottom is near. “You normally see the bottom somewhere between the beginning of June and the end of July as seasonality sets in,” he said. “However, if storms or heat [don’t] show up, we could be looking at a pretty interesting second half of the summer.”
Tom Saal of Commercial Brokerage in Miami, in his work with the Market Profile, is looking for the August futures to test so-called “value areas” but gives no indication of the timing. He expects tests of value areas first at $5.647 to $5.754, followed by tests of $6.090 to $6.130 and $6.380 to $6.436.
Market Profile is a form of technical analysis in that the market information derived from it is mechanical and calculated from a firm set of market parameters and definitions. The most significant difference between Market Profile and conventional technical analysis is that technical analysis attempts to determine market direction from historical data, often in the form of daily bar charts, but Market Profile uses the evolving market as its foundation to ascertain future market direction. Market Profile uses internal market structure to forecast prices and is very much a “present tense” type approach to market forecasting.
Going into the week’s storage report, most traders had been looking for an injection centering around 70 Bcf. The actual injection was larger than last year’s 70 Bcf build, but smaller than the five-year average injection of 92 Bcf.
A Reuters survey of 22 industry players had been looking for an average injection of 72 Bcf. Golden, CO-based Bentek Energy projected a storage injection of 70 Bcf. The ICAP derivatives auction held after the close of Nymex floor trading Thursday revealed a consensus build expectation of 67 Bcf.
Current stocks are 425 Bcf higher than last year at this time and 591 Bcf above the five-year average of 2,024 Bcf. The East region led the charge for the week by injecting 50 Bcf, while the Producing and West regions deposited 17 Bcf and 6 Bcf, respectively, into underground stores.
©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |