With the momentum behind Monday’s rebound now fully dissipated, October natural gas futures on Wednesday returned to the recent business of scouting lower values. The prompt-month contract reached a low of $3.708 before closing the regular session at $3.762, down 5.4 cents from Tuesday.
Despite rallying more than a dime on Monday, Citi Futures Perspective analyst Tim Evans said natural gas futures are doing nothing more than chopping sideways within the recent trading range. He added that storage levels could fall below the five-year average by the end of the refill season. “Although storage injections are trending higher seasonally now, we continue to see enough heat in the temperature outlook to limit refills to something less than the five-year average level.”
Looking at Thursday’s report for the week ending Aug. 27, Evans said he expects a 55 Bcf build will be reported by the Energy Information Administration, which is just below the 61 Bcf five-year average injection.
“This variance may not seem compelling, but it will be the 11th consecutive week with a declining year-on-five-year average surplus, normally an intermediate-term support for prices,” he said. In addition to the 61 Bcf five-year average, the fresh storage data will also be compared to last year’s date-adjusted build of 63 Bcf.
Bentek Energy’s flow model is predicting a 54 Bcf build for the week, which would bring inventory levels to 3,106 Bcf. Bentek anticipates a 55 Bcf injection in the East Region, an 8 Bcf build in the Producing Region and a 9 Bcf draw from the West Region.
As the East Coast braces for Hurricane Earl’s arrival later this week, some forecasters note that the Atlantic tropical season is way behind the earlier “active” forecast. Joe Bastardi, a meteorologist with AccuWeather.com, said that the error resulted from not assessing the impact of Canada. “The ‘mistake’ I made was not figuring how hot it would get in Canada this summer, which plainly distorted the playing field for the tropics,” he said. “But look what happened. Once pressures rose, the cool came (and went) and the season started.”
He noted that cooling “will come and go the next 10 days, and the response may be three more names in that time. Given the tendency for La Nina seasons to be back-weighted, not only will [we] be seeing impact points with Earl (probably scored a Cat. 1 or 2 hurricane on the North Carolina coast, then again New England) but we could be at eight or nine storms by Sept. 10, the traditional midpoint of the hurricane season with what should be a back-weighted period to follow.” Bastardi contends that “18-21 [named storms] may not be so bad after all, even though the big concern will be the impact forecast.”
In the eyes of some analysts, 18 to 21 named storms still won’t have much impact on the supply-demand balance for natural gas. “While allowing for the fact that a couple of months remain in the hurricane season and the likelihood that at least one major hurricane will find its way into the Gulf Coast region, this late start to the [Gulf of Mexico] storm season is forcing downward adjustments in the amount of supply that will be taken off the market this year,” said Jim Ritterbusch of Ritterbusch and Associates. He pointed out that “some estimated losses have ranged as high as 150-160 Bcf, but these estimates may need to be halved soon if the hurricanes continue to track northerly.”
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