Coming in lower than almost all industry estimates, the Energy Information Administration (EIA) reported Thursday morning that only 70 Bcf was injected into underground natural gas storage for the week ending June 26. News of the smaller-than-expected build helped boost August natural gas futures values temporarily before an afternoon plunge led the contract to close Thursday’s regular session at $3.615, down 18 cents from Wednesday’s close. Over the four-day workweek August futures fell 49 cents.
Just ahead of the 10:30 a.m. EDT report, the August contract was trading at $3.720, but in the minutes that followed the front-month contract jumped to $3.794. However, the rally was short-lived as futures pushed lower from there.
ICAP’s Brian Larose and Citi Futures Perspective analyst Tim Evans deemed the injection “bullish” and “supportive,” respectively, but Evans wasn’t sure the report would have a lasting impact. Most folks attributed the modest build to recent heat as opposed to the long-awaited trickle-down effect from the drastically reduced rig count.
“The 70 Bcf net injection was on the low end of the range of expectations and under the 85 Bcf five-year average level — a supportive number,” Evans said. “The issue here is the extent to which this may have been a one-off event, with the extreme heat in the south-central U.S. last week now past.”
Going into the report some market watchers such as Bentek Energy had been expecting a build as low as 75 Bcf, while Evans had been looking for an 85 Bcf addition. The injection was the first to come in below the five-year average build in four months. The five-year average build for the week is 85 Bcf and last year 86 Bcf was injected.
“The injection was right where we thought it would come in. It was below the five-year average, but we’re not concerned one way or the other,” said Ed Kennedy, a broker with Hencorp Becstone Futures in Miami. “This injection was smaller than the ones we’ve seen the past number of weeks due to the heat we saw in the South last week. I think the warmer temps were definitely creating some additional gas demand.
“I guarantee you one thing. By the end of the injection season storage will be full. Whether we get there early or late, I really don’t care. It’s obvious that we have plenty of gas. I don’t think the smaller injection was a result of the rig count reductions. However, I do think the reduced level of rigs looking for gas is keeping the market from scouting new lows because the shorts are reluctant to press the issue.”
As of June 26, working gas in storage stood at 2,721 Bcf, according to EIA estimates. Stocks are 615 Bcf higher than last year at this time and 467 Bcf above the five-year average of 2,254 Bcf. The East region injected 55 Bcf while the West and Producing regions chipped in 11 Bcf and 4 Bcf, respectively.
Analysts find that coal prices can be a leading indicator of natural gas, and presently the coal market may be perched on a ledge ready to fall further. “Coal has been a useful lead indicator for natural gas, especially on the upside. We have found that it is very difficult for natgas to decline until coal has peaked,” said Walter Zimmerman of United Energy.
From a technical perspective, coal is close to breaking a key support level at $44.28 and “new lows could be on the horizon. With natural gas approaching the lower bounds of a two-month-old trading range, will we see new lows as well? Or could new lows in coal and a failed attempt at new lows in natural gas be a divergence buy signal?”
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