While the Energy Information Administration’s (EIA) natural gas storage report of a 66 Bcf injection for the week ended June 23 paled in comparison to historical figures, the number was larger than the expectations of many in the industry. After trading as high as $6.290 on Thursday morning, August natural gas — in its first regular session action as prompt month — dropped significantly lower following the report before settling at $6.135, down 2.5 cents for the day.
The prompt-month contract, which was trading at $6.290 just prior to the 10:30 a.m. EDT release, plummeted to $6.040 in the 15 minutes following the storage report. August natural gas spent the rest of the day bouncing between $6.090 and $6.160.
“The fact that we got a 66 Bcf build and the market plunged 20 cents on that number is a little surprising,” said Steve Blair, a broker with Rafferty Technical Research in New York. “While industry expectations were slightly smaller than the actual injection, the 66 Bcf build was also significantly smaller than historical comparisons. It does not make a whole lot of sense.”
Looking at the natural gas futures market on the whole, Blair said $6 remains very strong support for the new prompt month despite July’s close Wednesday at $5.887. “July’s settle Wednesday was on an expiration, so to me it doesn’t mean a whole lot to the market,” he said. “I am still of a firm belief that the market is very comfortable in the $6.00-7.50 price range. I am not saying that the market can’t get through $6, but if it does, I think you have a very limited downside of 30 cents at most. Every time the market has gotten below $6, the buyers come in.
“If you want to play it from the short side if we break $6, then you better be playing it for a quick blip down. As soon as that thing gets down around $5.80 to $5.75, get the hell out,” Blair said. “You really have to buy the dip if it gets below $6. From my perspective, you still have a pretty good buy between $6 and $6.20. When it gets down into the $5s, it is going to bounce real fast.”
While natural gas wasn’t so interesting on Thursday, the petroleum complex saw all the action it could handle. “Somebody was putting the squeeze on July gasoline due to all of the problems they are having down in Louisiana with the barge traffic on the Intercoastal Waterway,” Blair said. “Crude was also interesting because the August contract on Thursday broke above a major resistance line, so it is possible we could see a substantial move from a technical perspective. I guess we will see if we get the follow-through here. Unlike the natural gas market, which has really been trading its fundamentals, petroleum appears to be completely ignoring reality.”
August crude jumped $1.33 Thursday to close at $73.52/bbl, while July unleaded gasoline shot up 8.89 cents to close at $2.2948/gallon. July heating oil climbed 5.02 cents to settle at $1.9876/gallon.
Despite the petroleum strength, Blair said he did not expect the price jump to influence natural gas futures. “If it hasn’t done it by this point, I am not sure that scenario will play out. Any fuel switching would have already taken place,” he said. “If that is the case, the natural gas futures market certainly is not going to be bumped higher by this most recent surge in crude prices.”
Agreeing with a number of traders, Blair said the Nymex floor on Friday would likely be somewhat of a ghost town. “It is going to be a quiet day in the market. It is also the last day of the month,” he said. “We have the holiday weekend with Monday and Tuesday off from Nymex and a number of people are looking to make it a five-day weekend. It doesn’t happen very often.” In observance of the Independence Day holiday, Nymex’s energy markets will close at 1 p.m. EDT on Friday and will be closed on Monday and Tuesday, with electronic trading reopenning at 6 p.m. on the fourth.
Other brokers were also scratching their heads following the storage action Thursday. “The injection was bigger than the people who trade natural gas expected, which is kind of a shock,” said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. “The reason industry projections were so surprising is because the smallest injection for the week over the last five years is 68 Bcf.”
Kennedy said he thought the week was basically over a day early. “We’ve got a four-and-a-half-day weekend coming up and nobody is going to go home short during the hurricane season,” he said. “Over that expanse of time, a lot can change. There is a wave out over the Leeward Islands, but it is not supposed to develop.”
The broker said the remainder of the week should be somewhat sleepy. “All you have to do is look at the action over the last week where we’ve had huge profits on the short side,” Kennedy added. “You’re not going to go home short this week, you’ll wait to redeploy next week. Most of the locals I’ve talked to Thursday morning said they aren’t even coming in Friday. Speculative traders are another story, they can do whatever they want.”
The 66 Bcf injection came in well under both last year’s 95 Bcf injection and the five-year average injection of 98 Bcf. However, it was just enough to top most industry estimates. A number of industry experts were expecting the exact same injection number — a build of 59 Bcf. A Washington, DC-based broker, the ICAP derivatives auction and Golden, CO-based Bentek Energy all had that number penciled in.
Other projections centered around an injection of 62 Bcf, including the median of a Bloomberg survey of 16 analysts. Also estimating a 62 Bcf injection was Strategic Energy & Economic Research. Not all of the forecasts were exactly aligned, however, as a Reuters survey of 20 industry players was looking for an average injection of 64 Bcf.
Despite the bearish reaction, the storage surplus compared to the five-year average dropped from 35.1% to 31.6%. As of June 23, working gas in storage stood at 2,542 Bcf, according to EIA estimates. Stocks are still 423 Bcf higher than the same time last year and 611 Bcf above the five-year average of 1,931 Bcf. The East region injected 42 Bcf for the week, while the Producing and West regions deposited 15 Bcf and 9 Bcf, respectively.
©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 |