With storm paths and storage report technical difficulties dominating trading pit conversations Thursday, it’s no wonder that the September natural gas futures contract was mostly rudderless on the day. Despite an inline with expectations 21 Bcf injection for the week ended Aug. 10, the prompt-month bounced between $6.590 and $6.950 before finishing out the day’s regular session at $6.875, up 1.1 cents from Wednesday’s close.
After crossing through the Gulf of Mexico overnight and causing no known damage, Tropical Storm Erin produced drenching rains over Texas. Most precautionary Gulf production shut-ins were expected to be lifted Friday (see related story). Now the focus is solely on Hurricane Dean, which forecasters upgraded to a Category 2 hurricane Thursday evening. Dean is expected to impact the Yucatan peninsula, but forecasters were warning that interests in the Caribbean and the Gulf should monitor the storm closely.
Despite technical difficulties, the Energy Information Administration (EIA) reported Thursday morning that 21 Bcf was injected into underground storage for the week ended Aug. 10. While coming in well within most industry expectations, futures values dropped following the report. Prior to the report, September natural gas futures were trading at $6.950. However, immediately following the number’s release, the contract plummeted, reaching the $6.590 low just after noon EDT. Some confusion surrounded the report’s release because the EIA’s website could not be accessed.
“The rumor was they are having trouble with their website,” said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. “The 21 Bcf injection was pretty much expected, but traders still went ahead and pounded futures lower. With Tropical Storm Erin now firmly in the rear view mirror, freshly upgraded Hurricane Dean is now in the spotlight, although the storm is still a ways out. We will wait and see what happens here now.”
Equating the futures market’s recent trading activity to a ride on Coney Island’s famous Cyclone rollercoaster, Jay Levine, a broker with enerjay LLC, said the September contract’s ups and downs on Thursday alone were “enough to leave anyone queasy,” noting that “reversals (and volatility) should remain the norm and not the exception.”
The broker added that the only thing missing are gap market openings up or down — often followed by reversals — whether on Globex or the Nymex floor, taking the volatility index up a notch. He added that now there is the “increased uncertainly of the hurricane season in spite of existing supply and in spite of the 10% drop in crude since making all-time new record highs. Rollercoaster or not, current weakness or not, signs are still pointing north in the complex — one needn’t even be classified a bull to consider the possibilities — with further major declines likely limited in price and time.”
Looking at support lines, Levine sees $6.750 as a pivot, followed by $6.545, $6.375 and $6.250. As for resistance, the broker targets $7.100, $7.350 and $7.500, followed by $7.750 to $7.850.
The 21 Bcf injection came in below historical comparisons. According to the EIA, 30 Bcf was injected last year for the week, while a 57 Bcf build is the five-year average. A Reuters survey of 21 players expected an average injection of 22 Bcf.
Of note in the report was that the Producing region actually withdrew 13 Bcf to deal with the widespread heat last week. The East Region injected 29 Bcf and the West region chipped in 5 Bcf. As of Aug. 10, working gas in storage stood at 2,903 Bcf, according to EIA estimates. Stocks are still 108 Bcf higher than last year at this time and 371 Bcf above the five-year average of 2,532 Bcf.
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