Just as the prior weeks’ report showing greater-than-expected withdrawals from gas storage inventory sparked hefty futures gains, Thursday’s report by the Energy Information Administration (EIA) showing less-than-anticipated withdrawals prompted a sharp reversal. At the close, January futures fell 17.8 cents to $5.643 and February tumbled 18.6 cents to $5.698. February crude oil rose $1.38 to $78.05/bbl.
It also appears traders aren’t convinced that weather and weather-driven gains ultimately have enough traction to keep lifting prices. “I don’t think this [weather] is going to carry on for the rest of the winter season and carry prices another $1 or $2 higher,” said a Denver-based marketer. He’s predicting there will be periods of relative warmth.
“I don’t think the economy is as strong as people think, and I don’t think the economy is on any kind of huge pick-up. We are seeing strong equities, and is that a leading indicator? It could be, but I would like to see more [natural gas] demand rather than ‘Oh we think the demand is coming.’ Heating demand comes and goes, but we need strong industrial demand to keep natural gas prices up, and I am hesitant to say we are at that point.”
Technical traders expect the market to see rough going at higher prices. “We have some technical numbers at $6 and $6.60, and we do see the market running into some resistance there,” said a Washington, DC-based broker. He added that the issues of abundant supply and an economy that is showing only nominal signs of recovery haven’t been resolved just because of the first cold weather.
He said, “$5.80 has been an area we get over but can’t stick. We have done a lot of producer selling in the last run above $5.80, and it looks like they are using price bounces to get some downside [protection]. The curve is very flat.”
Prior to the release of the storage data, traders were apprehensive that if the withdrawal number came in higher than anticipated there could be another surge up. “This report could have a larger pricing impact than usual since the past two releases posted much larger storage declines than had generally been expected,” said Jim Ritterbusch of Ritterbusch and Associates. He added that if the storage decline again exceeds average industry ideas, “the possibility that industrial production may be much stronger than previously suggested and/or production may have declined more than anticipated will both need to be considered. It is also possible that imports may have slipped. In any event, we are still viewing this month’s sharp contraction in the supply overhang as an important market dynamic, one that keeps alive the possibility of one more price up spike to a $6 handle.”
Cold weather looks like it is going to stick around. In its morning report Commodity Weather Group of Bethesda, MD, said a winter storm continued to pound the western Midwest and Plains, and “stronger cold” could be expected in the Northeast by the middle of the week. “Models are setting the stage for potentially stronger January cold outbreaks,” said Matt Rogers, the firm’s president, in a morning note to clients.
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