Extreme cold in the East finally translated into a stout natural gas storage withdrawal report, but it appears some traders were expecting an even larger number as near-month natural gas futures fell following the 10:30 a.m. EST report Friday. The February contract put in a new low for this downtrend on Friday before closing at $4.518, down 16.3 cents from Thursday’s finish and 28.3 cents lower than the previous week’s close.
The Energy Information Administration (EIA) reported that 176 Bcf was withdrawn from underground stores for the week ended Jan. 16. The report, which came out one day later than normal due to the holiday Monday and the presidential inauguration on Tuesday, was mostly in line with industry expectations, but was much larger than the 128 Bcf that was removed last year for the similar week and the five-year average draw for the week of 126 Bcf.
Heading into the report, February futures were moving higher and had reached $4.681. However, in the minutes that immediately followed, the prompt-month contract sunk to $4.513. Just prior to noon EST, the contract put in a new low for this downtrend at $4.432.
Despite the supportive draw, some market experts were quick to point out that it would take a lot more than one sizeable pull to turn the price direction around.
“The net withdrawal of 176 Bcf was dead neutral compared with consensus expectations, although supportive relative to the 126 Bcf five-year average benchmark,” said Citi Futures Perspective analyst Tim Evans. “This cuts the year-on-five-year average surplus from 81 Bcf to 31 Bcf. Bearish data expected in the weeks ahead will limit price support from the above-average withdrawal for last week.”
Other market participants had a problem with how Friday’s report could be deemed bearish. “I for the life of me can’t figure out how the 176 Bcf draw is bearish, but somebody out there did,” said Ed Kennedy, a broker with Hencorp Becstone Futures LC. “Price levels have already fallen to a point where I am not interested in the downside here. I am seeing a few buy signals out there, but they are only preliminary at this point, nothing really that you could act on yet. I think we are going to range trade for a while between the $4.20s and the $4.80s…and that’s it.”
He noted that traders could see a string of pretty solid storage withdrawals, but they will be hard pressed to match the 240 Bcf and 221 Bcf that was removed last year for the weeks ended Jan. 23 and Jan. 30, respectively.
“We’ve got some pretty difficult withdrawals to match going forward, but I think we’ll see a few more hefty pulls,” Kennedy said. “The National Weather Service [NWS] is calling for a big warm-up through the end of the month, but all of the independents are still calling for below-normal temperatures for the next few weeks. Not as cold as it has been, but still below normal. So we’ll probably see a few more sizeable withdrawals. We’re entering the part of the season where people have to get the gas out of the ground. Utilities put the gas into the ground in order to pull it out over January and February.”
Ahead of the storage report, most industry estimates were centered around a withdrawal of 170 Bcf to 180 Bcf. A Reuters survey of 23 industry players produced withdrawal estimates from 149 Bcf to 201 Bcf with an average pull estimate of 179 Bcf. Evans was expecting 175 Bcf to have been removed from underground stores, while Ritterbusch and Associates had been looking for a 182 Bcf pull.
As of Jan. 16, working gas in storage stood at 2,560 Bcf, according to EIA estimates. Stocks are now 20 Bcf less than last year at this time. The East region, which was blanketed with below-normal temperatures last week, removed 125 Bcf from storage while the Producing and West regions withdrew 43 Bcf and 8 Bcf, respectively.
The brutal cold of the Jan. 10-16 week, which sliced through the Midwest and East, raised heating requirements to the point that the current heating season is now colder than normal, according to NWS figures. The NWS starts recording heating degree days (HDD) from July 1 and since then New England has tallied 3,264 HDD, or 122 more than normal; New York New Jersey and Pennsylvania had 2,869 HDD , or 47 more than normal; and the Midwest from Ohio to Wisconsin had 3,358 HDD, or 172 more than normal.
Siding with Kennedy, a New York broker said he also is not expecting natural gas prices to head lower. “Everybody is thinking this market should go down, down, down. I understand demand deterioration, but when you get under $5 in natural gas, you start looking at some really cheap numbers,” he said. “I would be a buyer of natural gas on dips rather than a seller on rallies. My fundamental friends say it’s a stupid thing to do, but patience is key. We’ve had the big sell-off and I recommended people take their profits, but I didn’t have the confidence to go back in here feeling that we are going lower.”
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