June natural gas futures lost ground in active inventory report-driven trading Thursday as natural gas bulls found themselves swimming upstream against government storage data that showed a greater-than-expected addition to inventories and continuing upheaval in oil and financial markets.
June natural gas futures fell 6.2 cents to $3.929 and July shed 6.5 cents to $4.042 on news that 83 Bcf was injected into U.S. natural gas storage for the week ending April 30. June crude oil was pummeled to the tune of $2.86, settling at $77.11/bbl and the Dow Jones Industrial Average dropped 347 points to 10,520.
The Energy Information Administration (EIA) inventory report revealed a build in inventories slightly greater than what traders were expecting. An earlier Dow Jones poll revealed an expected 79 Bcf injection and a Reuters survey of 26 industry traders and analysts showed an average 80 Bcf build. The actual figure came in at 83 Bcf.
“We were bouncing all around prior to the report, but when it came out it first shot higher. Globex posted a high of $4.086, but at one point [there was] one 4.101 bid,” said John Woods, a senior trader at McNamara Options LLC in New York. “It was trading $3.96 to $3.97 before the number, it jumps to $4.101, the guy pulls his bid, and then it comes screaming down taking out some important support points along the way. A 50% retracement on this market is the $3.82 level and I think we will get it Friday.”
The actual injection figure came in identical to last week’s 83 Bcf injection, well above the five-year average build of 71 Bcf but only slightly below last year’s hefty 87 Bcf addition. Prices dropped on the report, reaching a low of $3.855 before rebounding a bit to close.
The stout build puts April in new territory. For April 2010, injections now stand at 357 Bcf, a record, and well ahead of April injections over the last 10 years. The previous April high was 253 Bcf, which was reached in 2006. For the week the East Region injected 38 Bcf while the Producing Region added 33 Bcf and the West Region chipped in 12 Bcf.
Recently traders have become accustomed to a rangebound market, and as bearish as Thursday’s figure may seem, the widely touted $3.81 technical support level may provide a platform for an eventual turnaround. “It looks like we may be seeing signs of one of these kinds of turns,” a trader said. “Prices may have reached a point of diminishing returns on the short side. As long as $3.81 holds (on a closing basis), that’s the bet being taken by non-fund traders.”
Volatility wasn’t just limited to natural gas futures. In financial markets the Dow Jones plunged as much as 998 points, the biggest intraday loss since the market crash of 1987, before making more than a 650 point comeback to cut its loss to “just” 347 points on the day. The Euro slid to a 14-month low and yields on Greek, Spanish and Italian bonds surged on concern European leaders aren’t doing enough to stem the region’s debt crisis. U.S. Treasuries soared.
Traders have noted that natural gas prices have been strikingly resistant to the declines in the petroleum complex and Peter Beutel of Cameron Hanover suggests that “the many bearish factors in this market have already been thoroughly discounted by lower prices.” He also admits that fund and managed account selling has had a huge impact on prices. The steep decline registered last Thursday when June futures plunged 36.8 cents to $3.98 had fund-selling fingerprints all over it, he said.
“Our first response is to look at funds as the most likely source of that selling. We expect that producers were hedging when prices broke $4.33 on the upside, but we expect that their selling stopped as we got beneath $4.20 or $4.15,” Beutel said.
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