Sending shockwaves through the natural gas futures market ahead of the Thanksgiving holiday, the Energy Information Administration (EIA) reported at noon (EST) Wednesday that 49 Bcf was pulled from storage for the week ended Nov. 19. The number fell so far outside of anyone’s expectations that market watchers were looking to the EIA for some sort of explanation.
The bullish storage news sent the futures market through the roof, instantly bumping the December contract up 45 cents from pre-report levels. The December contract expired at $7.976, up $1.183 from Tuesday’s settle and 86.1 cents up from the Friday, Nov. 19 close. As prompt month successor, January futures climbed $1.018 to settle at $8.639. Market watchers attributed the price run-ups to the unexpected storage draw. The December Nymex settle was nearly $3 above the cash price at the Henry Hub on Wednesday, which was in the low $5.00s.
With the storage number so much higher than anyone expected, the common thread amongst traders and analysts was that there must have been some sort of error with the report.
“A lot of people have been calling,” EIA’s Bill Trapmann told NGI. “I had a conversation with the [EIA] administrator [Guy F. Caruso] and we are aware of the concerns. He wants us to certainly look at anything and everything about it to address it.
“But regardless of what we find we wouldn’t be providing any detail about the survey since it is conducted on a confidential basis, and we don’t issue any unscheduled releases,” Trapmann said. “The revision policy is that we would put something out only with the regularly scheduled release, which would be 10:30 a.m. (EST) next Thursday and there is a threshold of 7 Bcf that would trigger it. But any information that we had [Wednesday Nov. 24] before the survey went out would be included in it [the Wednesday survey].
“We still have quite a substantial amount of gas in storage,” Trapmann noted. “But the implied net change from last week was higher than the five-year average.”
Commercial Brokerage Corp.’s Tom Saal echoed those sentiments. “It was a lot higher than people expected,” he said “Of course, this all happens on a day when there are a lot of absent people from the floor due to the holiday.”
And, whether EIA would come up with a later revision or not, it wouldn’t help those whose contracts are settled by the Nymex December expiration price, traders noted.
Prior to the report coming out a day early due to the Thanksgiving holiday, industry predictions for the week had been ranging all over the map from a 25 Bcf withdrawal to a 15 Bcf injection. The implied market forecast produced by ICAP’s options auction Tuesday was a 15 Bcf withdrawal. The 49 Bcf withdrawal trounced last year’s 1 Bcf withdrawal. It also significantly outpaced the five-year average pull for the week of 37 Bcf.
However, predicting storage patterns during the winter heating season has been proven tricky. According to a new draft paper circulated earlier this month by Gerald D. Gay of Georgia State University and Betty J. Simkins and Marian Turac, both of Oklahoma State University, storage forecasting is not an exact science and weekly storage changes are even more difficult to forecast during withdrawal periods than during injection periods (see Daily GPI, Nov. 24).
“I don’t have enough data to say that there is an error, but I think that we are owed an explanation, a footnote or something,” IFR Energy Services’ Tim Evans told NGI. “The number is just so far away from anything that the weather would have suggested. It’s almost like somebody left the windows open and the furnace on to the tune of 50 Bcf.”
Despite the sizeable pull, storage levels continue to sit very comfortably, thanks to a record injection season. Working gas in storage now stands at 3,272 Bcf, according to EIA estimates. Stocks are now 118 Bcf higher than last year at this time and 263 Bcf above the five-year average of 3,009 Bcf. The East region was responsible for almost all of the pull, drawing 45 Bcf from underground storage. The Producing region accounted for the remaining 4 Bcf withdrawal.
“On face value, the report is bullish,” Evans said. “However, we still have a hefty year on five-year surplus. Until we get an explanation, you don’t know whether this report is some kind of larger ongoing shift that will just eat through storage at a faster clip than anticipated,” or whether it is an anomaly.
He noted if that much gas was used when it was 60 degrees in New York City, who knows how much will be used when it is 20 degrees. He added that some sort of explanation or reclassification would make the market feel a whole lot better that this is not a larger shift going on.
Addressing the large difference between expiring December futures prices and current cash market prices, Evans said it is still like comparing apples and oranges. “The futures are December-average delivery and cash is cash,” he explained. “Basically this implies that cash is going to be rising through the month of December. I admit that it is a stretch for cash to come anywhere close to the futures price.
“Another astounding thing about this EIA report is that with cash this far below futures, why would you use up storage instead of covering current consumption off of the cash market and save your storage for later,” Evans asked. “I even thought we might have seen a build in the Nov. 24 report because of this. You buy cash, you sell January or February…there is a spread you can drive a truck through…and if we do get some severe cold, we’ll get cash at a premium to futures. It just doesn’t make sense.”
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