Despite normal weather and no clear threat to the Gulf production area from tropical activity, natural gas futures prices surged higher Tuesday with the near-month contract adding 38.4 cents to settle at $7.008, near its daily high of $7.030. Brokers pointed to strong Henry Hub cash as part of the reason. Tropical Depression Four in the eastern Atlantic, meanwhile, served as a reminder that the hurricane season isn’t over just yet.
“The [tropical depression] is background noise; it’s the strong cash market that has everybody perplexed, mainly the Henry Hub,” said Ed Kennedy of Commercial Brokerage. He noted that Henry was up about 15 cents and some of the other Gulf Coast points also posted solid gains. “It could be storage buying or someone could be short gas and got caught. I don’t know. But I think we are still stuck in a [near-month futures] range between $7.05 and $6.45, and I don’t think we are going anywhere for the time being. After all, we are at the height of the hurricane season and anything can happen.”
Kennedy said few people were that interested in the tropical depression, which is 140 miles southwest of the Cape Verde Islands off the West Coast of Africa. The National Weather Service projects that the storm will move across the Atlantic in a northwesterly direction toward the Northeastern United States. However, it won’t even reach the central Atlantic until next weekend.
“That little puppy out there…no one seems too concerned about it right now,” said Kennedy. “The National Weather Service never has a clue where these things are going. It depends on how fast it travels West and how fast it strengthens. If it strengthens rapidly it could pull toward the Mid Atlantic states, but if it develops slowly, all bets are off.”
Steve Blair of Rafferty Technical Research said the depression is just another reason why traders realize it’s much better to buy this market and be long than to be short. “The market has bounced off what we think are some pretty good technical support numbers. And even though there’s no threat to the production area from this storm, I think there are people out there who really want to be long this market and they use any little spark as a reason to buy it.
“I think we have a fairly limited downside compared to the potential upside that we might have if several things happen either together or individually,” Blair added. “And those could include another little heat wave in key areas or tropical weather.”
This week’s gas storage report, however, should show a larger injection into storage than the 37 Bcf injection reported last week for the week that ended Aug. 11. Bentek Energy said in its new U.S. Gas Burn report that gas demand from power generation last week totaled about 189 Bcf compared to 218 Bcf a week earlier (the same week that 37 Bcf of gas was injected into storage). During the first two weeks in July, gas demand from power generation averaged 169 Bcf/week and storage injections were 89 Bcf and 59 Bcf, respectively.
Tim Evans of Citigroup said he’s expecting a 45 Bcf injection in this week’s report. Consultant Ron Denhardt of Strategic Energy and Economic Research is projecting a 39 Bcf injection. Consultant Stephen Smith is forecasting a 53 Bcf injection, and the opening number on the ICAP storage options auction, which will take place on Wednesday evening, is 60 Bcf.
“We’re going to have a good injection this week, but I think the storage report is the most overrated piece of junk,” said Kennedy. “We are going to be full by the end of the injection season. Whatever they decide we are going to need for the winter, they are going to put in the ground.
“What does matter is the AC load,” he said, “and we kind of have chamber of commerce weather from Chicago to Boston and down to New York right now. It’s hot in the South and hot out West, but up in that Northeast corridor it’s pretty nice.”
Kennedy said market technicians are “getting creamed” in the futures market currently because of the intra-day volatility. On Monday, for example, futures broke out to the upside and then dropped 30 cents in a few minutes. On Tuesday, there was a 20-cent rise in the last half hour of trading. “They are getting murdered. We’ve had quite a few of those days in the last month. It has more to do with an absence of order flow; there are gaps in the market. It could be people on vacation or nobody knows what to do. Some end-users may be still waiting to buy their winter gas because these high premiums are holding on the winter months. There’s no reason for the winter months to be so high up there; it’s mainly spec buying.”
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