February natural gas futures gained another 14.2 cents on Wednesday as traders positioned themselves for what could be confirmation Thursday morning that last week’s bone-chilling cold resulted in an all-time record natural gas storage withdrawal. The prompt-month contract closed Wednesday’s regular session at $5.733.
The largest one-week withdrawal from natural gas storage is 274 Bcf, which was booked during the week ending Jan. 25, 2008. While most estimates are calling for approximately 250 Bcf to have been removed for the week, at least one estimate had storage entering this week 275 Bcf lighter.
“The nice bounce we’ve had from the lows of the week is primarily attributable to expectations that we could have a record withdrawal from natural gas storage inventories for the week ending Jan. 8,” said Gene McGillian, a broker at Tradition Energy. “I also think people are looking at next week’s forecasted warm-up as only temporary before another plunge into below-normal temperatures in February.”
McGillian added that chatter in some trading circles regarding United States Natural Gas (UNG) fund activity also could have contributed to the recent rally. “There was some talk Tuesday that UNG is going to create some more share baskets, which could have contributed to the up move on the day,” he said. “The idea that the fund is going to have to come in and buy some gas to cover the new shares they’re selling might have triggered a little more short-covering than folks expected for the day. By the calculations we do, they have close to 84,000 contracts on right now. That is down from their record position, but they are inching back up towards it.”
The broker said the market over the last week has tested, and slightly widened, both ends of the recent price range. “The upper boundary is now at $6.100 and the low end has been extended to $5.350,” he said. “We’re right in the middle of the range, and in my opinion we will continue to be at the mercy of how the weather turns out and where the storage draw numbers come in each week. Depending on what we see for a number in Thursday morning’s storage report, we’ll head to a boundary either higher or lower. However, I personally think the market is going to have trouble breaking too much above $6.100 or below $5.350. If we do get a draw in the high 200s Bcf, I think the warm-up next week will likely dampen the resulting rally.”
Taking a closer look at Thursday morning’s report from the Energy Information Administration, a Reuters survey of 27 industry players produced a withdrawal range of 195 Bcf to 280 Bcf with an average call of 256 Bcf. Bentek Energy said it believes the “arctic blast” that “covered the entire country east of the Rocky Mountains” resulted in a 275 Bcf withdrawal, which would bring inventory levels 4.7% below the five-year high. The research firm said it expects a 156 Bcf draw in the East Region, a 101 Bcf draw in the Producing Region and an 18 Bcf draw from the West Region. If realized, the Producing Region withdrawal would best the previous record for the region of 81 Bcf during the week ending Jan. 25, 2008, Bentek said.
Peter Beutel of Cameron Hanover noted that the current surplus situation is a far cry from what it was even a month ago. “We know that underground storage levels remain higher than a year ago, and they are above the five-year average for this time of year,” he said. “But the surpluses have come a long way from their worst conditions, and last week’s report saw the surpluses cut significantly. Higher storage levels were the animating force behind the decline from $13.69 to $2.40. The figures have improved since then.”
One set of figures that has not improved for the bulls is recent weather forecasts. They just keep getting warmer and warmer. MDA EarthSat in its six- to 10-day outlook calls for normal to much above-normal temperatures for the entire country with much of the Ohio and Mississippi valleys much above. Only small portions of Southern California are expected to be below normal. It says “warmer changes were made to the forecast again [Wednesday] across parts of the Midwest and East. A combination of strong southerly flow and an impressive upper ridge will produce the warmth across the eastern two-thirds of the nation.”
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