The Energy Information Administration (EIA) reported a 37 Bcf gas storage injection Thursday morning, prompting the near-month gas futures contract to nose dive to its daily low of $6.45 from $6.60 in the minute following the 10:30 a.m. storage report. The injection was on the high end of expectations, many of which centered around 30 Bcf. But the September contract managed to rebound throughout the afternoon, ending the day down only 7.7 cents to $6.689.
“We ran into moderately good support down around $6.45. Don’t get me wrong. I’m not bullish at all, but I think if I had to categorize the downside it would be dimes and not dollars,” said Ed Kennedy of Commercial Brokerage. “We may get closer to $6. I doubt we are going to get below it.”
He noted that the bulls don’t have much on which to build their case. Outside the South, power loads are diminishing. With milder weather cooling down much of the nation, gas demand from power generation nationwide is expected to fall 15% (32 Bcf) this week to 186 Bcf, Denver-based consulting firm Bentek Energy said in its new U.S. Power — Gas Burn Report. Gas demand from generation is expected to be down 27% (67 Bcf) this week compared to the week ending Aug. 4 when there was record power usage that led to a net 12 Bcf withdrawal from U.S. gas storage inventories.
“Burns are down across the country with the exception of [the Western Electricity Coordinating Council] and [the Southwest Power Pool], which should show a slight uptick from yesterday,” Bentek analysts said on Thursday in their report, which uses gas delivery data from 427 natural gas and dual-fired power plants across the nation to estimate total U.S. demand from power generation. “Cooling temperatures in the Upper Midwest are bringing down burns in the [Midwest Reliability Organization] region once again to 46 MMcf/d in the Bentek sample. Despite this week’s low burns, average daily burns for August 2006 are still 15% above last August.”
Bentek said with most of the data in for the week it looks like next week’s gas storage report from the EIA will show a “large injection number.” This week’s injection was 37 Bcf and corresponded to a gas burn of 218 Bcf nationwide. The previous week’s 12 Bcf withdrawal came during a week when there was 253 Bcf of gas demand from power generation, according to Bentek’s estimate.
Gas demand for the month of August to date this year is up 4.8 Bcf/d from the same period in 2005, and gas demand from generation for the entire summer so far also is up 15% to an average of 22.3 Bcf/d from 18.4 Bcf/d last summer, according to Bentek.
However, with power loads on the decline and tropical weather nonexistent, the bears seem to be in control of the futures market for the time being, said Kennedy. “All we are seeing so far is the shorts having had a nice ride and then you get periodic short covering and that’s the only reason we rally.
“I think the injections are a waste of time to even pay attention to,” he added. “You ever notice that no matter what we do we get full by the end of October? Last year we had all the shut-ins, gas shut in all over the place, rigs flying around the Gulf, but we still got 3.2-3.3 Tcf of gas in storage. We are going to get 3.2-3.3 Tcf in again this year so what’s the big deal?
Thursday’s gas storage report triggered a sharp 15-cent drop in a minute or two, but over the following two hours the near-month contract managed a rebound to the daily high of $6.72. That came despite an injection figure that was well over many expectations. The ICAP storage options auction Wednesday had predicted a 30.4 Bcf injection. Reuters’ survey of 20 market observers showed a consensus build of 29 Bcf, and Bentek Energy forecast an injection of 30 Bcf using actual data drawn from pipelines across the nation.
The EIA said working gas levels in storage as of Aug. 11 totaled 2,800 Bcf, a nice even number that is about 11.6% above levels at the same time last year and 14.2% above the five-year average. Despite the larger than expected injection, the producing region still showed a net withdrawal of 4 Bcf, which was offset by the 4 Bcf net injection in the West.
“The thing that really matters is how hot it is and we’ve lost that case for the bulls,” said Kennedy. “I know it’s hot in the South and it’s hot in Texas — boy, that’s unusual. But up North from Chicago to Boston, loads are way off. We really have nothing here to build a rally on.”
The National Weather Service’s six- to 10-day forecast calls for a broad area of below-normal temperatures over the Northeast, New England, Mid Atlantic, Midwest and a large part of the Midcontinent. Above-normal temperatures are expected in Florida and west of the Continental Divide. Normal temperatures are forecast elsewhere, including across most of Texas, the Rockies and from East Texas east to the East Coast. The eight- to 14-day forecast is very similar, except that normal temperatures are seen in the Northeast, Mid Atlantic and New England.
Meanwhile, the National Hurricane Center said Thursday that the only thing on the horizon is an area of low pressure 70 miles south-southeast of Charleston, SC, that is producing thunderstorms. The NHC said there was a “small chance” that the system could develop into a tropical depression by Friday. The system is drifting toward the Southwest.
Kennedy said the market is likely to remain range-bound in the short term with a slightly lower bias. “I think you can say $6.50-$7.50 on the outside of it, or maybe $6.45-$7.20. Tomorrow will probably be a real yawner. It’s summertime and we are running out of summertime.”
Another broker said locals on the floor are a little wary of getting into the market right now with so many players on vacation. “I think everyone is a little gun shy about trading this market.”
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