After breaking above the $13/MMBtu price level on Tuesday, July natural gas futures continued to explore the upside throughout Wednesday. The prompt-month contract climbed an astounding 25.8 cents to finish Wednesday’s regular session at $13.210, backed by low storage injection expectations for the week ended June 13, a $2.67/bbl bump in July crude futures due to Nigerian strike fears and a “couple of distinct waves” traveling in the tropical Atlantic and the Caribbean.
Market technicians sensing a market top have yet to see any confirmation. Traders noted that last week the market traded in a relatively narrow range and said they thought the market might be ready to put in a seasonal top. “Natgas spent the last week in relatively narrow range congestion just below the highs,” said Walter Zimmerman of United Energy. He observed that typically a seasonal peak is quite dramatic. “There is a major spike higher and then an immediate dump lower. Last week’s narrow range congestion could not have been more different than typical seasonal peaking action.”
“Without a decisive close below the $12.125 level we are still expecting further upside. Much higher prices become possible if the $13.280-13.580 [range] can be decisively exceeded,” he said in a note to clients.
Even though he sees the current natural gas futures market as “fundamentally overvalued,” Citi Futures Perspective analyst Tim Evans said the door to the upside still remains inexplicably open. “The natural gas market has extended its rally a step further, with expectations for a low storage injection in Thursday’s report, ongoing warmer-than-normal temperatures for much of the U.S. through early July, and now a tropical wave in the Atlantic that bears watching,” he said. “The storm system is most likely not going to find the combination of favorable development conditions and a storm track that would carry it into the Gulf of Mexico in 10-14 days, but since the possibility cannot be ruled out, the market still has a chance to rally. We continue to see this market as fundamentally overvalued, but with the upside still open to expand that premium valuation somewhat further.”
Turning attention to Thursday morning’s natural gas storage report for the week ended June 13, Evans said he expects the Energy Information Administration (EIA) to report a 70 Bcf injection. A Reuters survey of 21 industry players produced a range of injection estimates from 51 Bcf to 78 Bcf with an average build expectation of 62 Bcf. Golden, CO-based Bentek Energy said its flow model had honed in on a 57 Bcf injection, which would bring stocks to 21.5% below the five-year high and 2.6% below the five-year average. The number revealed Thursday will also be compared to the 90 Bcf injection recorded last year for the similar week, which also happens to be the five-year average injection number as well.
The EIA report will be issued at 10:35 a.m. EDT on Thursday morning, which is five minutes later than the report’s normal release. The government agency said earlier this month that the delayed release will continue until further notice to prevent early accessing of the report’s data.
Current market strength is impressive given the lackluster near-term weather outlook. In his Wednesday morning report meteorologist John Dee said “below-average temps will bring about very limited demands for cooling across the eastern half of the Midwest, the Northeast U.S. and even into the Mid-Atlantic for the next three to four days. Even the Southeast U.S. will see lower-than-average demand for cooling energy occur with below-average temps for the rest of this week and weekend.”
Weather bulls can take some solace in the fact that Dee forecasts that the Southwest and south-central U.S. will “see above-average temps leading to some of the highest demands for cooling that they have seen so far this season. Temps in the Pacific Northwest and northern Rockies will run close to average.”
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