In a delayed reaction to the bullish combination of a slightly supportive storage report (78 Bcf injection) and an explosion at the Moss Bluff storage facility east of Houston, the natural gas futures market turned higher Thursday morning as light speculative buying mixed with continued end-user hedging activities. The September contract finished the session at $5.507, up 12.5 cents for the session.
Also supportive of gas prices was the crude oil market, which gapped higher at the opening bell and notched a new, all-time high at $48.70 Thursday as supply concerns resurfaced following the intensification of fighting in the Iraqi holy city of Najaf. At its expiration Thursday, the September crude contract settled at $48.70, up $1.43 for the session.
According to the Energy Information Administration, 78 Bcf was added to underground storage facilities last week, pushing inventories to the 2,530 Bcf level. At first blush Thursday, market watchers considered the report modestly supportive to prices as it fell in the lower half of the 72-90 Bcf range of expectations and below the 82 Bcf figure resulting from the ICAP-EIA Storage Auction Wednesday night.
Versus last year’s comparable figure of 77 Bcf, the 78 Bcf was neutral and versus the five-year average of 59 Bcf, it could only be considered bearish. At 2,530 Bcf, storage levels are 231 Bcf higher than last year at this time and 136 Bcf above the five-year average. With 11 weeks left in the refill season, the market needs only to average 61 Bcf per week to reach the 3,200 Bcf level considered ample heading into the withdrawal season.
However, storage may not be as full today as it was yesterday after an early morning blast Thursday set ablaze one of three caverns in Duke Energy’s Moss Bluff storage facility in East Texas. No injuries were reported, but the blast sent flames shooting into the sky and forced the company to cut off gas supply to the entire facility. Working gas capacity in the storage cavern where the blast occurred is 6 Bcf, but it is not known how much gas it contained at the time of the fire. Two other caverns at the 16 Bcf facility reportedly were not involved. The fire was still burning at noon.
In daily technicals, Steve Blair of Rafferty Technical Research in New York sees minor support for September at $5.33, followed by congestion in the $5.20 area. Though he does not rule out prices dropping below those levels, he is advising his end-use customers to take advantage of dips by buying at-the-money or slightly out of the money winter calls.
On the upside, Tom Saal of Commercial Brokerage Corp. in Miami was not surprised by the rally, having called for short-covering that could reach the mid $5.50s. However, he was reluctant to rear his horns fully and sees solid resistance in the mid $5.50s potentially stemming the advance.
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