Taking corrective action following Tuesday’s 21-cent-plus gain, natural gas futures traders pushed the expiring September contract to a low of $5.380 on Wednesday before it went off of the board at $5.430, down 16.3 cents on the day.
Traders attributed the loss Wednesday in part to a correction of the storm hype-inspired run-up on Tuesday. In addition, most storage injection estimates for the week ended Aug.24 were targeting a build near 50 Bcf, which likely took further wind out of the sails of the bullish case.
“I think the market got itself a little worked up on Tuesday over the potential storm situation,” said Steve Blair, a broker with Rafferty Technical Research in New York. “Dow Jones on Tuesday put a story out that something might be going on storm-wise, but they didn’t even mention what weather service they got it from. The market got all bent out of shape on the news even though most weather services denied any storm formation. Wednesday morning, there was some talk that something might be coming off the African coast, but it is only a wave and it is almost two weeks away from us.”
Blair noted that the storage situation adds to the current bearish tint to the market. “We are looking for an injection approaching 50 Bcf and some storage operators are getting ready to announce curtailments,” he said. “If we get enough of these due to too much storage, that will put a really heavy cloud over this entire market.”
October futures, which now assume the front-month title, dropped even further than September on Wednesday. The contract closed 18 cents lower at $5.581. Looking at potential support lines, Blair said the first major support zone is $5.400, with the next level not coming into play until $5.
Some traders were still mulling increased Atlantic tropical activity, adding an element of tropical weather premium to the market as three systems in the Atlantic are being watched. Jim Ritterbusch of Ritterbusch and Associates calls them an “important pricing consideration and will be the possible injection of additional storm premium. Although these storms are being closely monitored, there is thus far no conclusive evidence that they will strengthen and provide an eventual threat to the Gulf Coast production infrastructure. It should also be kept in mind that storm premium can evaporate faster than it accumulates within an environment of record high stock levels.”
AccuWeather is following three tropical waves in the Atlantic Basin. The first is at 42W and 18N, and the forecaster believes this “could become a depression within the next day or two.” A second wave at 68W and 25N shows a pattern of showers northeast of the island of Hispaniola, but AccuWeather does not see conditions there as favorable for tropical development. The third wave at 87W and 22N is a fast-moving system east of Nicaragua and Honduras, and there may be just too little time for development before the system makes landfall.
Bulls, however, are ready. Phil Flynn of Alaron was stopped out on his last purchase of October natural gas. He was long from $5.730 and was stopped out at $5.720. Now he suggests buying October at $5.200 with a stop at $4.900.
Ritterbusch is not convinced that a major price advance is likely. “Some further upside follow-through to the $6.050-6.100 level in the October contract is possible on any significant storm updates. Short of a major storm development, we are still not ruling out fresh lows and a minor violation of the $5.00 mark in the October futures.”
Breaking down the Energy Information Administration’s storage report for the week ended Aug. 24, the number revealed Thursday morning will be compared to last year’s 49 Bcf injection and the five-year average build of 61 Bcf.
Golden, CO-based Bentek Energy said its flow model indicates an injection of 48 Bcf, bringing stocks 2.6% above the five-year high (set last year) and 12.1% above the five-year average. The injection estimate assumes a 42 Bcf injection in the East region and a 6 Bcf injection in the Producing region with the West region not injecting or withdrawing any gas for the week. The research and data analysis firm added that storage fill nationwide increased 1.2%, from 79.5% to 80.7%, during the week with the largest percentage increase coming at Ft. Morgan-CIG, up 6.5% from 84.2% to 90.7%. Lodi decreased by 8% from 70.6% to 62.7% for the week.
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