With a “wild card” storage report looming Thursday morning (see Daily GPI, July 26), it appeared that traders were positioning themselves for the most bullish scenario as August natural gas futures tore higher on Wednesday, one day ahead of the contract’s expiration. The prompt month put in a $6.900 high late in the session before closing at $6.887, up 47.8 cents from Tuesday’s close.

“Anything can happen” appears to be the mantra of storage prognosticators as the range of expectations for Thursday morning’s report spans from a 50 Bcf injection to a 3 Bcf withdrawal. The wide range reflects just how unsure the market is on the amount of gas consumed for electricity generation last week. The prolonged heat wave in a number of the larger gas-consuming regions continued Wednesday but relief could be just ahead, according to forecasters.

“Futures is trading right about where the cash market currently is,” said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. “What we are seeing is ‘good old’ market volatility.

“I wouldn’t rule anything out for this storage report,” he added, noting, “We are kind of in a new situation here with the extreme heat. We’ve got increased demand for power as the thermostat continues to rise, and that increased incremental demand is normally satiated by natural gas-fired electricity generation. We really don’t know how much gas was used for generation last week. After a peak record week like we had, I think all bets are off.”

If a withdrawal in the heart of injection season were to pop up in Thursday’s report, Saal said he wouldn’t necessarily call for futures to run up to $8 just yet. “I think we will need a series of low storage injections or a couple of withdrawals in order for it to sink in for the market,” he said. “I think the market can absorb one low number and write it off as a peak week condition, which may never happen again. Now if we get a couple of those weeks, then we’ve got something to talk about.”

Jay Levine, a broker with enerjay LLC, said Wednesday’s action could mark a change in the market’s direction. “If the market believes we’re turning a corner, albeit a psychological and/or technical one, that could be enough (to extend recent gains) and become a whole new ballgame.”

Levine was also keeping a watchful eye on the psychological $7 price level for the August contract. “You could say [that] with [open interest] over 6,000 in the [August] $7.00 Call, $7.00 became a more distinct possibility as the day progressed, and…we took out initial resistance and stops got hit,” he said. “The longer the day wore on, without prices following suit, the table was set for another leg up, even if it fell just short of the mark [of] $7.”

The broker added that the market could be in for a string of lower-than-normal storage injection reports. “You could also say the market is anticipating the next few storage reports will likely show lower-than-expected injections — indeed some are forecasting withdrawals — and even though this record summer heat alone isn’t enough to turn the tide of existing fundamentals, it could be a catalyst (or, rather, one reason amongst several) where perceptions about future fundamentals are at risk. Lastly, you could add that this market has been under water for so long — fundamentally, technically and psychologically — that any given rally (and we’ve seen our share of them, even if they have all fizzled) could just as easily extend beyond any expectations, that one never knows when this market has turned (the corner) for good.”

Looking more closely at storage report expectations, a Reuters survey of 24 industry players is predicting an average injection of 28 Bcf, although the range of projections was vast — from a withdrawal of 3 Bcf to a build of 48 Bcf.

Golden, CO-based Bentek Energy said it was looking for a small withdrawal. “Nationwide hot weather flipped the Bentek sample into the withdrawal mode, indicating a total storage withdrawal of 3 Bcf.” If the estimate turns out correct, working gas would now sit at 2,760 Bcf, which Bentek points out is 21.8% above the five-year average and 9.5% over the five-year high. Bentek expects the East region will inject 14 Bcf while the Producing and West regions withdraw 14 Bcf and 3 Bcf, respectively.

Also on the low side was the ICAP derivatives auction, which revealed a consensus build expectation of only 3.4 Bcf.

The western heat is expected to moderate. “After days of temperatures climbing into the 90s and even past the century mark, some relief is finally in sight for the interior Northwest this weekend,” said Kristina Baker, an AccuWeather meteorologist. She said temperatures will remain above normal through the end of the workweek, then will actually drop to slightly below-normal values as a ridge will be pushed farther to the East. “Compared to Wednesday’s highs, temperatures will be pleasantly 15-20 degrees cooler on Sunday,” she said.

Currently, AccuWeather is monitoring developments in the Atlantic, but sees little chance of any system developing. To date the season is following closer to historical norms. “We continue to see a more normal tropical season so far. In a typical year we should see one or two tropical cyclones during the early part of the hurricane season. So far we have had only two tropical storms. A year ago on this date we had already had seven tropical cyclones, three of which were hurricanes. This shows just how unusual last year was,” the forecaster said.

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