November natural gas futures tested longstanding resistance at $7.500 once again on Tuesday, but were rebuffed. The prompt-month contract traded between $7.360 and $7.550 before settling at $7.458, up 9.1 cents from Tuesday’s close.
Even with near-record levels of natural gas in storage and moderate winter weather expectations, natural gas traders are having a hard time disregarding the mercurial rise of crude futures. November crude reached a new all-time high of $89/bbl on Wednesday before closing at $87.40/bbl, down 21 cents from Tuesday.
Commenting on the obvious disregard for bearish natural gas fundamentals, some industry experts said that while the natural gas and crude markets have been disconnected for the last two years, natural gas futures just “can’t dismiss” the historical highs being recorded in crude futures.
“With crude making a run that is so strong, natural gas just can’t ignore it any more. While crude and natural gas futures were highly linked in the past, it appears the widespread adoption of electronic trading, which started about two years ago, is driving a wedge between the two markets,” a Washington, DC-based broker said. “A few years ago, you would call down to the natural gas pit to find out what was going on and the guys would say they were just following the neighboring crude pit. Now, with less activity in the pits, the markets are mostly independent. However, when there is an extreme move like the one we are currently seeing in crude, natural gas has to follow.”
The broker said she is definitely in the bullish camp, but noted there are some important numbers above the current level that need to be broken for a further advance. “The $7.500 level has been a target of ours and we tested it again on Wednesday,” she said. “We keep butting up against it, but if we make it through, then a case for $8 could be made. If crude makes a run over $90/bbl, then I think natural gas will pierce that important $7.500 level. However, if crude settles down and natural gas fails to settle above $7.500, then we are just in a well defined trading range between $6.750 and $7.500.”
Natural gas traders are definitely following the happenings in crude markets. “Oil prices may not be a driver of natural gas, but it does give some support,” said another Washington, DC-based broker.
A New York floor broker added, “I’m thinking $7.50 is a good top area, and with crude being so strong it has held up natural gas. Natural gas traders are paying a lot of attention to crude oil.”
Breaking down the Energy Information Administration’s natural gas storage report for the week ended Oct. 12, the industry’s estimates are all over the place. The range of expectations runs from injections of 35 Bcf to 71 Bcf. A Reuters survey of 18 estimates is looking for an average injection of 56 Bcf, while Golden, CO-based Bentek Energy said its flow model indicates an injection of 35 Bcf, which would bring stocks 1.8% below the five-year high (last year) and 6.6% above the five-year average. Bentek’s estimate expects a 22 Bcf injection in the East region, an 8 Bcf injection in the Producing region and a 5 Bcf addition in the West region.
“Storage fill nationwide increased 1% from 91.7% to 92.7% this week,” Bentek said in its weekly Natural Gas Storage Outlook. “The largest percentage increase was at Flank, up 7.7% from 77.6% to 85.3%, and Lodi, up 4.9% from 58.1% to 63%. Petal decreased by 10.6%, from 84.5% to 73.9%.”
The number revealed Thursday morning will be compared to last year’s 54 Bcf build and the five-year average injection of 63 Bcf.
“The field — and that includes the complex — is wide open with eye-popping, hair-raising and, one might even add, implausibly high prices,” said Jay Levine, a broker with enerjay LLC. “Nevertheless the complex continues on its merry way with eyes looking to the next few storage reports and other possible signs for the near-term future.”
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