Once again coming in much larger than historical figures, natural gas storage increased by 81 Bcf for the week ended Aug. 27, according to the Energy Information Administration’s latest report. The sizeable build helped natural gas futures continue their path lower as market-watchers focused on Hurricane Frances’ next move.
Immediately following the 10:30 a.m. EDT storage release, the October contract dropped seven cents to trade at $4.90, before resuming a slight decline lower. After hitting a morning bottom of $4.87, the prompt month traded at $4.925 as of 11:30 a.m. In afternoon trading, October futures dropped significantly lower, reaching a bottom at $4.71 before settling at $4.767, down 19.8 cents.
“This market seems to be very technically driven since we broke through the very psychologically key $5 level,” said Steve Blair of Rafferty Technical Research in New York. “We kind of blew through what we thought was the near-term support level around the $4.94-4.95 area. Basis October, we are looking for further support when we get down into the mid-to-high $4.60s.
“We have come down pretty hard over the past week or so from being up at the $5.40 level,” he added. “I still see a little bit more downside before this market takes a little bit of a bounce.”
On the storage front, industry forecasters were mostly looking for an injection in the 70-86 Bcf range, so the build came as no surprise. The shock value came when looking at historical comparisons. The 81 Bcf build decimated last year’s 67 Bcf as well as the 62 Bcf five-year average.
Working gas in storage now stands at 2,695 Bcf, according to EIA estimates. Stocks are now 276 Bcf higher than last year at this time and 184 Bcf above the five-year average of 2,511 Bcf. The East region led the injection charge by putting 50 Bcf in to underground storage, while the West and Producing regions chipped in 12 and 19 Bcf, respectively.
“The build was a little bit higher than expectations, so it certainly was a part of what happened today,” Blair said. “It was just one more little push to help push this thing down again. Ultimately, nothing has really changed on the fundamental side. We have nine weeks left in the so-called ‘injection season’ before we go into the heating season at the beginning of November. It appears at this point as if we are going to easily have 3.1-3.2 Tcf in storage. Of course as we get closer and closer to full, it gets harder to inject it.”
With Hurricane Frances refusing to divert or weaken, some traders were more concerned about the possible storm impact than a bearish storage report. All eyes appear to be on the Category 4 hurricane, which is heading toward the Florida peninsula and should make landfall Saturday morning. Whether it makes its way into the Gulf of Mexico — like Hurricane Andrew in 1992 — remains to be seen.
“It looks like at this point that Frances is really not going to have any impact on the Gulf production areas, at least not what we are seeing now,” Blair said. “Of course, if the storm ends up taking another direction and winds up going a little south of Florida and into the Gulf, then it is a whole different ball game. For right now, the hurricane doesn’t appear as if it will be an issue to the market.
Talking on the current natural gas futures complex, Blair said that the only thing that could jolt this market higher right now would be a hurricane in the Gulf. If a strong hurricane were to get into the Gulf, it could propel this market really quickly, forcing a lot of short positions out of the market, he said. “That would probably be the only thing that would propel this market back up into the $5.20-5.40 level.”
As of 5 p.m. (EDT), the National Hurricane Center (NHC) said that the eye of Frances was centered over San Salvador, which was experiencing 114 mph winds. The storm was 375 miles east/southeast of the lower Florida East Coast, moving toward the northwest near 10 mph. The NHC added that the storm is expected to see some slowing and a slight change to a west/northwestward path over the next 24 hours. As a result, the core of the storm is expected to continue to move near or over the central Bahamas Thursday night and will move over the northwestern Bahamas on Friday. Wind speed outside of the eye were clocked at 140 mph.
The NHC said a Hurricane Warning remains in effect for the East Coast of Florida from Florida City northward to Flagler Beach, including Lake Okeechobee. A Tropical Storm Warning and a Hurricane Watch are in effect for the middle and upper Florida Keys from South of Florida City to the Seven Mile Bridge, including Florida Bay.
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