Natural gas and crude futures continued to sink on Wednesday as bullish fundamentals for each commodity remained elusive. August natural gas declined by 7.6 cents to close at $3.353 while August crude futures plummeted $2.79 to close at $60.14/bbl.
During this most recent drop, the two commodities have certainly been feeding off each other. In just over a week’s time, August crude has shaved 16%, or $11.65, of its value from its $71.49/bbl close on June 29. Tuesday’s regular session decline accounted for $1.12 of the loss. Since the August gas contract’s $4.105 close on June 26, futures have dropped 18%, or 75.2 cents.
“We’re just seeing continued weakness out there right now,” said Tom Saal, a broker with Hencorp Becstone Futures in Miami. “Crude futures just got the living snot beat out of it on Wednesday, but I always thought crude overstepped a bit on its last rally. Now it is coming back to the $50-60/bbl area it always should have been in.”
Natural gas futures are kind of the opposite story, the veteran broker told NGI. “I still think natgas is being pushed way down below where it ought to be. I think the funds are piling on here with selling and once they are done, we should start to come back around. The funds are still well short in natural gas, where they hold kind of a balanced position in other commodities.”
Talking price, Saal said the $3.155 low from late April is certainly back in play. “It is never safe to pick a bottom in the market. I think what we’re seeing unfold is key evidence of that point. It really appears the natural gas futures market is going to continue to disintegrate until these guys quit selling,” he said. “Wednesday’s pattern under Market Profile is considered a nontrend day — where the market may have balanced out a bit where it had not in the past. It could be an indication of where the sellers will finally stop selling, but we’ll give it another day or two to see if that is the case. I’m waiting for these kinds of patterns to show that the sellers have run out of bullets. When that happens, we’re really sitting on somewhat of a powder keg and all we need is for someone to light the fuse.”
Short-term traders are not optimistic. “We are going to $3, maybe $2.500. I don’t think crude matters; there is no interest, there is no weather, and there is nothing that can make this market pick its head up,” said a floor trader. “People are talking the October contract at $2.450 to $2.500. The market is still in a bear mode and I think it’s another 50 to 75 cents before the market bottoms out. I’m sure, however, there will be bumps along the way.”
Turning attention to Thursday morning’s natural gas storage report for the week ending July 3, industry estimates indicate that the market is likely to see its third consecutive sub-100 Bcf injection. A Reuters survey of 21 industry players produced an injection range of 71 Bcf to 100 Bcf with an average build expectation of 83 Bcf.
In addition to falling short of triple digits for the third straight week, an 83 Bcf build would mark the second consecutive build below historical averages. Last year for the corresponding week 89 Bcf was injected into underground storage and the five-year average build is 90 Bcf.
Bentek Energy’s flow model indicates an injection of 79 Bcf, which would bring stocks 3.8% above the five-year high and 19.5% above the five-year average. The estimate includes a 62 Bcf injection in the East region, a 14 Bcf build in the Producing region and a 3 Bcf addition in the West region.
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