Natural gas futures turned in a fairly calm regular session on Wednesday as at least one trader hypothesized that the market was sidetracked by the much-publicized Commodity Futures Trading Commission (CFTC) hearing on position limits in the energy futures arena. The prompt-month contract closed Wednesday at $4.042, up 4.1 cents from Tuesday’s finish.
After climbing to mark a high at $4.090 in Wednesday morning action, September natural gas traded within a dime range before closing out the day. The lackluster mood was also evident in the crude futures arena where the September contract limped 5.5 cents higher to close at $71.97/bbl.
The CFTC convened in Washington, DC, Wednesday morning to continue its investigation of position limits and the role of speculators in the energy markets. While many surrounding the debate agree that position limits are needed to curb excessive speculation in energy commodity markets, questions abound, including who should set position limits, who should be exempted from the limits and at what level the position limits ought to be set.
On Wednesday John Hyland, CIO of US Commodity Funds LLC, which is the general partner for the United States Natural Gas Fund and the United States Oil Fund, found himself defending his funds’ role in the markets. He noted that while the media and some analysts have been trying to pin the recent large price moves to actions undertaken by his funds, his data proves no correlation (see related story).
“Action in the market was muted a bit on Wednesday. Sure, futures could still be catching their breath following Monday’s 37.8-cent gain, but I also know that my office at least was tuned into the CFTC position limit hearings,” said a New York trader. “Some of the folks I talked to during the day weren’t listening, but they were hanging on every news update. The proceedings could end up impacting the futures markets in a number of ways, especially if the Commission decides to cap the participation by the specs.”
Other market participants were focused on the explosion and compressor fire that occurred late Tuesday on Enterprise Products Partners LP’s platform at High Island 264 in the Gulf of Mexico. The incident shut in about 240-250 MMcf/d of gas (see related story).
“The natural gas market may be taking some emotional support from the explosion and fire on a natural gas platform 90 miles southeast of Galveston, TX, although we suspect the quantity of output involved is most likely modest,” said Tim Evans, an analyst with Citi Futures Perspective in New York.
“Warmer-than-normal temperatures for the central U.S. over the next two weeks are also something of a support, although we don’t see this as necessarily enough to fully offset the ongoing weakness in industrial demand to assure us of below average storage injections,” he added. “For that, we’re still waiting for further evidence that U.S. natural gas production has declined to the point that tips the balance in the market to a clear and ongoing deficit.”
Looking ahead to the Energy Information Administration’s (EIA) natural gas storage report for the week ending July 31, Evans said he expects a 58 Bcf build to be revealed Thursday morning, which would be almost spot-on the 57 Bcf build recorded last year for the similar week. The injection would still be well above the five-year average build for the week of 48 Bcf.
Bentek Energy’s flow model indicates an injection of 61 Bcf, bringing stocks 6.7% above the five-year high and 18.9% above the five-year average. Last year there was a 57 Bcf injection for the same week. The research and analysis firm’s estimate includes a 55 Bcf injection from the East region and a 6 Bcf build in the Producing region with the West region remaining flat for the week.
“East stocks are now 23 Bcf above the five-year high, recovering from a cold winter where stocks were as much as 317 Bcf below the five-year high,” Bentek said in its weekly Natural Gas Storage Outlook. “Stocks in all regions are now above the five-year high with the national stocks 220 Bcf, or 6.7%, above the five-year high.”
For the moment observers are taking a neutral position. “We are maintaining a neutral trading bias for now on the expectation that nearby futures will eventually settle back into the $3.500-4 trading zone,” said Jim Ritterbusch of Ritterbusch and Associates. It is his longer-term opinion that contract lows are in and “price consolidation below the $4 mark will prove to be a base-building process that will be followed by a sustained price rally.”
In the short run “we will look for Thursday’s trade to be influenced by the weekly storage data that is likely to indicate an injection just slightly above that of a year ago. While we won’t attach a lot of significance to the storage figures, the market’s response to the numbers could provide some important pricing clues as to trends during the coming week,” he said.
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