Natural gas futures trading on Wednesday mimicked Tuesday’s lackluster performance. Bulls were wary of bidding the market up in the face of bearish fundamentals, while the bears weren’t ready to risk testing the lower $5 level with winter just a few short months away.
Trading within another slim range surrounding the $6.00 level, October natural gas put in a $5.955 low and a $6.130 high before closing out Wednesday’s session just shy of $6 at $5.994, down 4.5 cents on the day.
“We really are still directionless here,” said a Washington, DC-based broker. “The $6 level seems to be a little bit of a holding point here. We had five or six down days, or days that had negative market behavior, followed by a little bit of a bounce Tuesday and nothing great Wednesday. The market appears to be thinking about punching lower one more time to make a new low before seasonal weather starts to work against it, but it appears that no one has a real appetite to make a big bet one way or the other.”
The broker noted that with summer coming to an end, buying time could be just around the corner. “Overall, I would in general be getting ready to be a buyer in this market due to the timing and seasonal hedging aspects,” he said. “We’ve been beat down here pretty well over the past few months, and we had a pretty decent low back in July [$5.470]. At some point we are going to run out of time and winter will arrive.”
The broker said he sees something in the $5.50 to $5.70 area as pretty good support. “Really, the only big possibility of pushing futures down to $5 would be an Atlantic Coast hurricane that would spare the Gulf of Mexico, but black out the Carolinas or Atlanta for a couple of days — anything that takes out a lot of East Coast demand.”
Commenting on the greater storm picture, the broker said with Tropical Storm Florence’s path currently nonthreatening to the Gulf of Mexico, the tropical weather front is “basically quiet.”
At 5 p.m. AST, the National Hurricane Center (NHC) reported that Florence was far out in the Atlantic Ocean 770 miles east of the Leeward Islands. It was moving west-northwest at 9 mph and that motion was expected to continue over the next 24 hours. Maximum sustained winds were 50 mph. The NHC said Florence was “getting better organized” and “should strengthen soon.”
The key question with Florence is where is it likely to head. Current NHC projections point to South Carolina, but the storm may end up heading out into the Atlantic. For the storm to head into the Atlantic, AccuWeather notes that a high-pressure system in the central Atlantic would have to weaken as it shifts eastward during the weekend. The clockwise flow around the high would curve Florence to the northeast before it reaches the coast early next week. “The second scenario, the more dangerous situation, involves the Atlantic high strengthening and expanding westward over the weekend. This would send Florence on a nearly due-west track right into the coast early next week, and slow the eastward progress of the upper-level trough, which would push Florence away,” the forecaster said.
Temperature forecasts don’t support higher prices. The National Weather Service forecasts that for the week ending Sept. 9 large energy markets are expected to see below normal accumulations of cooling degree days (CDD). New York, New Jersey and Pennsylvania are forecast to enjoy 11 CDD, or 11 below normal, and Ohio, Indiana, Michigan, Illinois and Wisconsin are anticipated to experience just nine CDD, or 13 below normal.
Market technicians, however, are favoring higher prices. Walter Zimmerman of United Energy points to the fact that with the exception of the resulting fallout from Sept. 11, 2001, natural gas “has never suffered a sharp drop during the month of September. Hence our rule of thumb to not be short natural gas after Labor Day.” He acknowledges that the amount of price appreciation is questionable, but “history suggests that the downside potential is much less than the upside risk from here.”
Traders’ attention Thursday morning will be focused on the latest Energy Information Administration (EIA) storage report, which many expect will reveal a sizeable injection due to the lack of demand for electricity generation due to milder temperatures last week, which were brought through the East by Tropical Storm Ernesto.
The broker said he sees a 60-70 Bcf injection when the EIA reveals storage levels for the week ended Sept. 1. That would be significantly higher than last year’s 39 Bcf build. A Reuters survey of 16 industry players sees storage levels rising by approximately 66 Bcf, while the ICAP derivatives auction held after the close of Nymex floor trading Wednesday revealed a consensus estimate of a 64.3 Bcf build.
Golden, CO-based Bentek Energy is projecting a storage injection of 62 Bcf, resulting in 2,967 Bcf of working gas in storage. If achieved, this level of working gas would be 11.8% above the five-year average and 5.7% over the five-year high, the company said.
The five-year average build for the week is 69 Bcf, according to EIA data.
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