August natural gas futures limped to a weak expiration as traders watched petroleum futures reel under a burdensome inventory report and acknowledged that Thursday’s Energy Information Administration (EIA) inventory report was likely to show additions greater than historical averages.
August natural gas fell 15.6 cents to $3.379 and September lost 13.9 cents to $3.548. September crude oil plunged $3.88 as the EIA reported additions to crude oil stocks greater than expected.
In the background there were rumblings from the Commodity Futures Trading Commission, which increasingly looks like it will be imposing some kind of limits on speculative futures trading, and an announcement from the United States Natural Gas Fund (UNG) that it already plans to reduce its holdings of the IntercontinentalExchange Henry Hub look-alike contract and may be abandoning attempts to expand its fund (see separate stories).
Traders admit that bulls might be on the ropes, but aren’t convinced that new low prices are likely just yet. “Now the question is can traders actually get it down here [$3.15], and can we keep prices down here?” queried a New York broker. “Let’s see how much follow-through there is on all these great bear conversations.
“The market needs to show that it can break through the $3.227 level made by the August contract in early July. If you look at a continuation chart, the low is $3.155, and if the market can take out the $3.15 to $3.22 area, then it is really showing something. Then you are saying what once was a consolidation is now overkill to the downside.
“If the EIA number comes out tomorrow as expected, let’s see how it impacts the markets.”
Impact indeed. The 10:30 a.m. EDT release of petroleum inventory figures Wednesday showed a build of 5.15 million bbl of crude oil, well ahead of the 1.0 million-bbl increase traders were expecting. Ten minutes after the release of the data September crude oil had peeled off 80 cents.
Surveys by both Bloomberg and Reuters revealed an estimated 73 Bcf build on tap for Thursday’s natural gas inventory report. Last year 68 Bcf was injected, and the five-year average stands at 51 Bcf.
Other analysts see the market as having more or less fully discounted the large natural gas inventory surpluses relative to last year and the five-year averages and now positioned to focus on — presumably — slimmer production and potential weather-related production interruptions.
“For almost a year the market was forced to discount a sizable expansion in the supply surplus against both year-ago and [five-year] average storage levels,” said Jim Ritterbusch of Ritterbusch and Associates. This has “been largely completed, particularly on a year-over-year comparison basis, [and] market dynamics have shifted and this market will be better equipped to respond to any weather events such as a major shift in the temperature outlook or indications of significant tropical storm activity. While the demand side of the equation still looks dismal as industrial offtake is unlikely to show significant improvement until next year, it is growing increasingly apparent that production has declined enough to stabilize the supply overage,” he said in a morning note to clients.
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