March natural gas futures soared higher Thursday on a propellant derived from economic concerns mixed with colder-leaning forecasts. Not even a sub-200 Bcf natural gas storage withdrawal report could deter the prompt-month contract’s spike, which reached a high of $8.810 before settling the day at $8.772, up 38.4 cents from Wednesday’s close.
Unable to pull the proverbial rabbit out of the hat in the form of a third consecutive 200 Bcf or greater storage withdrawal, the actual 120 Bcf withdrawal came in well within most industry expectations.
After trading higher to $8.565 in pre-report action, March natural gas futures was trading at $8.680 in the minutes that immediately followed. After Federal Reserve Chairman Ben Bernanke said Thursday afternoon that further interest rate cuts were a possibility, the prompt-month natural gas futures contract — along with most other commodity futures contracts — continued to soar.
“The natural gas futures are getting a lift from the updated weather forecasts that look somewhat cooler than Wednesday’s edition,” said Tim Evans, an analyst with Citigroup in New York. “The 11- to 15-day period is notably changed, with below-normal temperatures expected in the northern Plains and parts of the Midwest.”
The analyst noted that current pricing levels are not on par with historical comparisons of similar conditions during this time of year. “The day-to-day shifts in the temperature outlook continue to lead to daily price adjustments, but we note the larger condition of the slight year-on-five-year average surplus of gas is more consistent with a price about $2 lower than current levels,” Evans said. “The question is how and when the market will have the chance to get there.”
He noted that the Energy Information Administration’s (EIA) storage withdrawal report for the week ended Feb. 8 was no big surprise. “While the net withdrawal was well below the 167 Bcf five-year average, it looks like the market had already fully anticipated and discounted a similar figure into its thinking. The market may continue to focus on what cold we have ahead of us and the vulnerability to higher prices that may persist in the market than the extent of its current premium valuation.”
Others said that while weather changes definitely played a part in the up-move Thursday, economic concerns likely played a much larger role. “I think it is more than a weather thing because all kinds of commodities were higher,” said a Washington, DC-based broker. “I think the inflationary fear in the country is very great and that people are buying commodities because currently there is nowhere else to put your money. Now Bernanke is talking about lowering the interest rate again to help right the ship, but that just continues to increase inflation.”
Looking at resistance lines in natural gas, the broker said the key number is $9.050. “A break above $9.050 would put us back into that great sell-off zone from back in 2005 with Hurricane Katrina. Above $9.050, the next significant point is all of the way up at $10.650.”
Going into Thursday’s storage report, the energy industry appeared to be looking for a pull of just over 100 Bcf. A Reuters survey of 23 industry players included a range of withdrawal expectations from 91 Bcf to 135 Bcf, but the center-point was for a 113 Bcf draw. Golden, CO-based Bentek Energy said its flow model produced a 112 Bcf pull expectation.
Last year a whopping 259 Bcf was withdrawn for the similar week. On a date-adjusted basis to match up with the exact same seven days of 2008, the EIA reported that 254 Bcf was removed from underground stores during the 2007 week.
As of Feb. 8, working gas in storage stood at 1,942 Bcf, according to EIA estimates. Stocks are 183 Bcf less than last year at this time and 109 Bcf above the five-year average of 1,833 Bcf. The East region withdrew 66 Bcf, while the Producing and West region removed 27 Bcf apiece.
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