Traders noted that the decline Wednesday in natural gas futures fit into an overall trading pattern of tumbling energies with crude oil falling nearly $2/bbl., gasoline diving more than 10 cents/gallon and heating oil shedding more than 7 cents/gallon. At the close September futures had skidded 6.5 cents to $4.090 and October was down 5.4 cents to $4.102. September crude oil swan-dived $1.86 to $91.93/bbl.
“There is nothing that’s capable of supporting the market at this level,” said a New York floor trader. “All the weather has been thoroughly discounted. I think traders felt that since the market traded under $4.10 it had no momentum on the upside and just started selling it.
“The market got down to $4.066 and rebounded slightly, but you could easily see $4 Thursday. I have the feeling that there are stops (loss orders) below $4 since that is such a big number. I think this is a market where you sell high and buy lower; otherwise if you buy low, you’ll just keep on buying lower.”
Selling higher or buying lower may just become an option following the 10:30 a.m. Thursday release of inventory data by the Energy Information Administration. Last year 29 Bcf were injected, and the five-year average stands at 47 Bcf.
A Reuters survey of 25 analysts revealed a sample mean of 37 Bcf with a range of 23 Bcf to 45 Bcf, and Ritterbusch and Associates is looking for a build of 37 Bcf as well. Industry consultant Bentek Energy, utilizing its North American flow model, calculates a 38 Bcf gain.
Bentek thinks the figure could be lower still, and in a report it said it considers the 38 Bcf injection to have most of the risk to the downside. “The sample was almost flat week-on-week, but the heat continued in many states. Most facilities in the East Region reported larger-than-expected injections despite the warmer-than-normal temperatures, as the higher temperatures were reached over the weekend when demand is traditionally lower. The strong injections in the East Region largely supported the total injection,” the firm said. Bentek’s calculations show a build in the East Region of 39 Bcf, a draw in the Producing Region of 11 Bcf and an increase in the West Region of 10 Bcf.
Analyst Tim Evans of Citi Futures Perspective revised his earlier estimate of Thursday’s injection down to 37 Bcf from 41 Bcf, and sees upcoming thinner builds. “In addition to this overall change in the temperature forecast, we’ve also made some adjustments in our storage model that resulted in a reduction of 4-5 Bcf in weekly storage builds throughout the forecast.
“Under this storage scenario, the year on five-year storage deficit that was 65 Bcf as of July 29 would widen to 91 Bcf as of Aug. 12 before narrowing back in to 85 Bcf as of Aug. 19. The overall storage picture still looks similar to the way we’ve seen it for several weeks now, with warmer-than-normal temperatures having some impact in limiting storage injections, but with the risk of above average refill rates as soon as the heat wave relents.”
Trend followers have their choice of options when assessing the market. Walter Zimmermann of United-ICAP demonstrates in a monthly report to clients that the long-term trend is up; there is no intermediate term trend, and the short-term trend is down.
The long-term trend is visible from monthly bar charts with a succession of higher low prices since the early 1990s. The most recent low was seen in September of 2009 at $2.409.
The intermediate “no-trend” results from prices consolidating within a series of falling high prices and rising low prices since the long-term low of September 2009. The descending highs are the $6.108 high of January 2010 and the $4.983 high of June 9, 2011. Rising lows are the $2.409 low and the $3.212 low of October 2010.
“The short-term trend is clearly down,” said Zimmermann. “[We] still peg $3.890 the minimum target with $3.590 the next step down and the $3.200-3.190 zone long-term support.”
Near-term weather forecasts are slightly more temperate. Midwest and eastern points are expected to be normal, according to the six- to 10-day outlook from the Commodity Weather Group. The forecast shows an elongated ridge from Idaho to Georgia with much-above-normal temperatures centered over Oklahoma.
“With a morning low struggling to get below 90 degrees, today appears poised to be hottest for Dallas (forecast high of 112),” said Matt Rogers, president of the firm. “Searing heat continues in the south-central U.S. this week, and even when the ridge weakens a bit later this week, it is still strong enough to generate persistent much-above-normal anomalies. We see more support for a heat break in the Midwest and East in the six- to 10-day [forecast], but there are also signs of return warming to these areas in the 11-15 (although the European ensembles are slower).”
Rogers also said Tropical Storm Emily was poised to cross the island of Hispaniola Wednesday, but he considered present tropical threats to the Gulf of Mexico to be “very low.”
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