Coming in just below industry estimates but well below historical comparisons, the Energy Information Administration (EIA) reported Thursday morning that 23 Bcf was injected into underground natural gas storage for the week ended Aug. 17. Following the report, September natural gas futures inched higher before closing at $5.622, up 4.4 cents from Wednesday.
Trading on Thursday was lackadaisical as bulls and bears alike paused to regroup and take stock of the recent whirlwind of activity. The small gain Thursday halted the gargantuan streak of losses from Monday through Wednesday, which resulted in a $1.432 decline.
“The 23 Bcf net injection was below consensus expectations, suggesting ongoing stronger cooling demand and perhaps some drop in LNG [liquefied natural gas] deliveries as contributing to the tighter balance,” said Tim Evans, an analyst with Citigroup in New York. “It presents at least some hope of lower ongoing injections that could chip away at the storage surplus.”
Others noted that while the weekly storage reports affect the futures market, they really shouldn’t because the injection season always ends the same way — full. “The storage report is the most meaningless report we get in terms of natural gas trading,” said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. “Every year at the end of the injection season we are full, no matter what. Even after all of the hurricane-related shut-ins in 2005, storage was full going into winter 2005-2006…go figure.”
Looking at the current activity in the futures market, Kennedy said traders are at a “stalemate,” with not a whole lot of volume switching hands. “With the storage report behind us, the market is going to go back and do what it was going to do anyway,” he said. “We’ve had a pretty stiff drop over the first three days of the week, but there are still some of the funds who want to pressure it lower. However, the cash market is going to hold us to a certain level.
“We also had a return to above-normal temperatures for much of the country, which accounts for steady cash. Futures can trade below cash, I don’t have a problem with that, but not by a whole hell of a lot. The Henry Hub was averaging around $5.760 on Thursday and we aren’t going to get a whole lot of a discount to that. At this juncture, I question how much downside we have, but other than price, give me a reason to buy it. The tropics appear quiet. There was a tropical wave that was supposed to head over Miami, but it must have disappeared last night because I can’t find it today.”
Hurricane Dean is long gone, but AccuWeather is keeping a close eye on areas of disorganized showers and thunderstorms all the way from the Bahamas to Cuba and Hispaniola. The area of interest is a combination of a tropical wave along 77W extending north to 30N and a weak upper-level low. “Another tropical wave along roughly 61W, between 22N and about 8N, remains very disorganized as it moves west at about 6-8 degrees longitude per day,” the forecaster noted.
With little in the way of tropical activity, analysts are turning to the underlying fundamentals to gauge the future direction of prices. “There are no tropical storms active, temperatures are easing, and the (storage) overhang continues to grow,” said Eric Wittenauer, energy analyst with A.G. Edwards in St. Louis. He said the outlook for stronger prices is “bleak, and it suggests that prices will continue to be pressured until there is a tropical event, and traders will continue to try and find a floor. Moving below $5 would not be surprising.”
Most industry estimates for storage had been looking for an injection in the high 20s Bcf to low 30s Bcf. Golden, CO-based Bentek Energy’s flow model indicated an injection of 25 Bcf for the week. The 23 Bcf injection paled in comparison to last year’s 54 Bcf injection and the five-year average build for the week of 61 Bcf.
As of Aug. 17, working gas in storage was 2,926 Bcf, according to EIA estimates. Stocks are 77 Bcf higher than last year at this time and 333 Bcf above the five-year average of 2,593 Bcf. The East region injected 40 Bcf, while the Producing and West regions withdrew 15 Bcf and 2 Bcf, respectively.
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