The May natural gas futures expiration Wednesday was devoid of any fireworks as the contract traded between $4.186 and $4.326 before going off the board at $4.271, up 5.5 cents from Tuesday’s finish. Taking over the prompt-month contract title, June futures edged 3.3 cents higher to close at $4.348.
“For the second straight month, expiration has been pretty quiet,” said Steve Blair, a broker with Rafferty Technical Research in New York. “There really wasn’t anything outstanding that occurred on Wednesday. It was all pretty orderly.”
Now with expiration out of the way, traders Wednesday afternoon were preparing for a rare double dose of supply data to be released Thursday…with a twist. In addition to the normal weekly Energy Information Administration (EIA) storage report, traders on Thursday will also have to digest the administration’s announcement of February 2010 production estimates, which will include recalculations for all of 2009 using the new methodology (see Daily GPI, April 27).
There has been some controversy over the EIA-914 production estimates in the last year with independent analysts saying EIA has consistently overestimated volumes and failed to track the production decline that has accompanied declining prices (see Daily GPI, April 9). According to the EIA, Thursday’s revision will likely reveal a production drop for past months, but just how big of a drop is the question that has traders on the edge of their chairs.
“I think May expired so quietly because everyone is waiting to see what the EIA puts on the market Thursday with the anticipated downward revision in production,” Blair told NGI. “In fact, I think the market having this ‘revision’ over its head for the last month or so has a lot to do with the back and forth sideways trade we’ve seen recently. Traders are wary to push this thing too far in either direction for fear of what the revision will show. On the one hand, there are people saying this is all water under the bridge and won’t be a big deal, but then there are the folks that believe this could shake up fundamentals, and therefore prices, pretty well. We’ll have to wait and see what they do.”
Some top analysts see hints that a market bottom may be in the making. “Prices could not break or settle above key resistance at $4.334, but as long as they hold above the critical support at $3.810, the hope that they may be forming a bottom remains intact,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. “The biggest problem moving forward is that storage levels are growing against a year ago and against the five-year average. A year ago this week, the year-on-year surplus was 464 Bcf (34.14%). And now it is 95 Bcf above that. Surprises still seem to be on the upside, but the fundamentals are not yet showing signs of genuine improvement.”
Taking a closer look at Thursday’s storage report for the week ending April 23, Kyle Cooper of IAF Advisors in Houston expects a build of 77 Bcf, while Citi Futures Perspective analyst Tim Evans is expecting a 55 Bcf build. A Reuters survey of 25 industry players produced a 55 Bcf to 80 Bcf range of injection estimates with an average expectation that storage supplies will grow by 70 Bcf.
The number revealed Thursday morning will also be compared to last year’s 77 Bcf build for the similar week and the five-year average addition of 67 Bcf.
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