Coming in well above industry expectations, the 61 Bcf natural gas injection for the week ended Nov. 4 provided further justification for the recent bearish move in natural gas futures. Despite trading as low as $11.060 on the day, December natural gas ended up settling at $11.380, down 28.9 cents on the day.
The 61 Bcf injection that the Energy Information Administration (EIA) reported Thursday morning included a 10 Bcf reclassification from base gas to working gas.
In anticipation of the bearish report, traders worked December natural gas lower in Wednesday’s overnight Access session and again on Thursday morning. Immediately following the 10:30 a.m. EST report, the prompt month dropped an additional 25 cents to trade at $11.060 as of 10:35 a.m. The prompt month began its climb from there, settling 32 cents above its low for the day and 15 cents below its $11.53 high.
Despite the storage-induced price plunge, support at $11 once again held its ground. December natural gas also attacked this support level on Nov. 7, but was able to go only as low as $11.03 before rebounding to close at $11.873.
Commercial Brokerage Corp.’s Tom Saal said that the $11 level is “purely a psychological support level,” which the market obviously needs to get past if the move lower has a chance of continuing. “The more times you test a support level, it increases your probability of getting through it,” Saal said. “We will have to wait and see if the market succeeds this time.”
He said the huge injection is the result of “folks trying to top off their injection requirements,” adding that there is “obviously enough gas” to do it. “By historical levels, we have quite a bit of gas in the ground,” he said. “In addition, the month is almost half over and we haven’t had any kind of serious weather yet.”
Advest Inc. broker Jay Levine said that while bears would appear to be in control, the first hint of winter temps will likely prove the real test for the market. “If there was ever any question that the fundamentals aren’t nearly as bullish as the market and prices would have you believe, this [storage report] is it,” Levine said. “Combined with the trend in the petroleum sector — not just based on inventories either — it paints what could be deemed an otherwise grizzly picture. Of course balancing that out is the winter of 2005 still to come and one never knows when market psychology — for whatever reason — begins to rear it’s ugly head yet again.” He added that the market can pretty much “depend on that” at some point.
Typically November marks the beginning of the winter heating season, but unseasonably warm weather has temporarily delayed withdrawals from storage giving the industry more time to add supplies to offset Gulf production losses.
Prior to the report, a Bloomberg survey of 15 analysts was calling for an average injection of 47 Bcf, while Wednesday afternoon’s ICAP-Nymex storage options auction, which allows traders to hedge against or bet on the storage number, predicted a 42 Bcf injection for the week. The actual injection number revealed by the EIA dwarfed last year’s 35 Bcf injection and the five-year average build of 17 Bcf.
As of Nov. 4, working gas in storage was 3,229 Bcf, according to EIA estimates. At that point, stocks were 93 Bcf less than last year at this time and 123 Bcf above the five-year average of 3,106 Bcf.
The EIA did not report where the base gas reclassification occurred. Storage in the East rose 36 Bcf for the week, while the Producing and West regions chipped in 22 Bcf and 3 Bcf, respectively.
EIA also announced that the storage report for Thanksgiving week will be released on Wednesday Nov. 23 between noon and 12:10 p.m., rather than on Thursday, which is Thanksgiving Day. For details go to https://www.eia.doe.gov/ and click on Weekly Natural Gas Storage Report.
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