Natural gas storage inventory watchers received news of a slightly larger than expected injection Thursday morning as the Energy Information Administration (EIA) reported that 66 Bcf was deposited in underground caverns for the week ending July 31. The report created a knee-jerk lower in September natural gas futures values, which went on to close the day’s regular session at $3.743, down 29.9 cents from Wednesday.
The bearish writing appeared to be on the wall even ahead of the 10:30 a.m. EDT report as September natural gas trickled lower to trade at $3.925. Immediately following the release, the prompt-month contract dropped to $3.776. September gas went on to put in a low of $3.735 just prior to settlement.
“The injection was a little bit larger than most expected, which really is not helping a rally that was already on the ropes,” said Tom Saal, a broker with Hencorp Becstone Futures in Miami. “We had the nice move higher Monday, but the market has not found any additional momentum necessary to carry us to new highs. I think we’ll probably falter back here with a test of $3.500 eventually.”
For the time being, Saal said futures are stuck in a sideways action. “The trading range runs between $4.150-4.500 on the upside and probably around $3.500-3.250 on the downside.”
Citi Futures perspective analyst Tim Evans classified the report as “bearish” no matter how many ways you slice it. “The build was above the consensus expectations and also above five-year average injection of 48 Bcf, adding to the year-on-five-year average storage surplus,” said Evans. “It’s a bearish number and probably also implies that the larger supply-demand balance is somewhat more bearish than the market had expected. LNG [liquefied natural gas] imports could be part of the mix, though, which could be more of a one-off bump in deliveries. It’s bearish to one degree or another though, no matter how we explain it.”
Going into the report Evans said he expected a 58 Bcf build, while Bentek Energy’s flow model indicated an injection of 61 Bcf. In addition to being larger than the five-year average, the 66 Bcf build was also larger than last year’s 57 Bcf addition.
As of July 31, working gas in storage stood at 3,089 Bcf, according to EIA estimates. Stocks are now 580 Bcf higher than last year at this time and 496 Bcf above the five-year average of 2,593 Bcf. The East region injected 56 Bcf while the Producing and West regions chipped in 9 Bcf and 1 Bcf, respectively.
The drop in natural gas values went unmatched in the crude oil arena, where September crude futures ended up shaving a mere 3 cents from Wednesday’s close to finish at $71.94/bbl.
While the Pacific Ocean had Category 4 Hurricane Felicia and Tropical Storm Enrique, the Atlantic remained calm with no active systems expected to develop over the next 48 hours, according to AccuWeather.com.
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