Three failed attempts at conquering $5 appeared to be the limit as the July natural gas futures contract on Wednesday headed in the opposite direction. The prompt-month contract traded in a $4.667 to $4.836 range before closing out the regular session at $4.677, down 13.1 cents from Tuesday’s finish.
“After a few days of excitement, the futures market was a little subdued on Wednesday,” said Gene McGillian, an analyst with Tradition Energy. “Some of the weather forecasts for the rest of the month that are coming out are indicating reduced cooling demand needs, so I think the bull move lost its momentum. We’re pushing back from that $5 resistance level and I think traders are eyeing Thursday’s storage report. If we get a nice injection, the market could be pushed even further lower.”
McGillian said the “real fundamental picture” is still in place and he believes traders are beginning to realize that fact. “We are at a record storage level for this time of year. It’s hard to get past that. Now, the Energy Information Administration [EIA] is looking for an increase in demand thanks to power plants and an industrial resurgence, but the upticks in demand are not of an alarming level. Unconventional production of gas also continues to grow.”
He added that the market is definitely weather-driven right now. “We got some early June heat and futures ran up. The temperatures backed off and we came back down,” McGillian told NGI. “I think the new pivot in this market is $4.500, which will remain the case unless we get a really hot summer or we get a storm that could possibly threaten the vital areas of the Gulf. Weather is calling the shots.”
Short-term traders suspect that many are on the sidelines, waiting for a clearer fundamental picture to unfold. Those that are active are just playing the new, but higher, trading range.
“We’ve got good resistance at $4.95 to $5 and expect support at the $4.60 level,” said a New York floor trader. In his view a sale at $4.95 to $5 looks pretty low risk, and “no one has really bought into a strong bullish case and no one is thinking the market is going to rip to $5.50. This might be the end of the squeeze and the market has a chance to test $4.60, but I don’t see it falling below $4.50 given the strength of the cash markets and the underlying events unfolding in the Gulf.”
Turning attention to Thursday morning’s natural gas storage report for the week ending June 4, most industry expectations are for the EIA to report an injection of 90-100 Bcf.
Bentek Energy’s flow model is projecting a 97 Bcf build, which would bring inventory levels to 2,454 Bcf. The research firm expects the East Region to inject 48 Bcf, while the Producing and West regions inject 31 Bcf and 18 Bcf, respectively.
“Storage injections have slowed down since April due to higher demand, mostly in the Southeast and Northeast markets,” Bentek said in its weekly storage outlook. “During April, typically the first month of the injection season, storage injections were an average 25 Bcf above last year and 34 Bcf above the five-year average. In May, average injections were 15 Bcf lower than last year and 2 Bcf lower than the five-year average.”
However, the company noted that if 2,454 Bcf is achieved with this report, storage levels would still be sitting at a record high for this time of year, albeit by only 26 Bcf, or 1%, higher.
The number revealed Thursday morning will be compared to last year’s 109 Bcf injection for the similar week and the five-year average build of 95 Bcf.
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