Coming in above most industry estimates, the 71 Bcf weekly storage injection reported by the Energy Information Administration (EIA) for the week ended Sept. 1 prompted futures traders Thursday to push the October natural gas contract to a low of $5.660 before it finished the day at $5.718, down 27.6 cents on the day.
Immediately following the report, the prompt month dropped to trade at $5.750 before spending the afternoon winding lower. The last time a prompt month traded lower than $5.66 was on July 19 when the August futures contract put in a $5.650 low.
The significant weekly storage injection was attributed to mild East Coast temperatures last week, ushered in by Tropical Storm Ernesto, which lowered natural gas demand for electricity generation. Most industry expectations had been looking for a build in the 60s Bcf. The ICAP derivatives auction held after the close of Nymex floor trading Wednesday revealed a consensus estimate of a 64.3 Bcf build. The 71 Bcf injection blew away last year’s Hurricane Katrina-drained 39 Bcf injection and just topped the 69 Bcf five-year average.
Jay Levine, a broker with enerjay LLC said the storage report was “slightly on the high side of expectations,” but more importantly, he said, is what the report says about overall supplies. He said it just shows that “there is no energy supply crunch,” and that the fundamentals continue to weigh on the market. “Sentiment is, once again, bordering on apathy (never a good thing, as surprises then tend to come out of nowhere and often counter-intuitively) with the technical picture getting all the more interesting…as natural gas and crude both get all the more closer to what I feel are important supports.”
In natural gas, Levine said significant support resides from $5.70 to $5.75, although the major trend-line still sits closer to $5.25.
“The report was obviously larger than expected,” said Tom Saal, managing director and commodity trading advisor for Commercial Brokerage Corp. in Miami. “The market has appeared to be slowly grinding lower over the last few weeks. Once the market is finished reacting to the bearish storage report, the market should regroup, consolidate and wait for the next piece of fundamental information. Tropical Storm Florence looks like it will be a nonevent, but it won’t be the last potential hurricane this season. We are in the peak of the season here.”
As for a recommended trading strategy, Saal said it is important to take advantage of the opportunities that the market gives you. “We still like the idea of utilizing an options strategy in this market. We think the volatility is going to be dropping here, so it is probably a good time to put on collars. As a market participant, it is important to use all of the tools available to make the best informed decisions.”
Saal along with his Commercial Brokerage partner, Ed Kennedy, will be sharing some of their market expertise at one of the very popular Natural Gas Futures Trading Workshop sessions October 4-5 at the New York Mercantile Exchange. Joining them will be long-time floor trader and market-mover Sandy “Trot” Goldfarb, who will breakdown for attendees how he views the natural gas futures market — both in the short- and long-run. For more information about the NGI Natural Gas Futures workshop visit: https://workshops.gasmart.com/hedging.
As of Sept. 1, working gas in storage stood at 2,976 Bcf, according to EIA estimates. Stocks were 312 Bcf higher than that same time last year and 322 Bcf above the five-year average of 2,654 Bcf. Feeding off of the milder temperatures, the East region was able to inject 43 Bcf for the week while the Producing and West regions chipped in 19 Bcf and 9 Bcf, respectively.
A Bloomberg survey of 19 analysts had been looking for on average an injection of 68 Bcf, while the ICAP derivatives auction held Wednesday afternoon after the close of Nymex floor trading revealed a consensus injection of 64.3 Bcf.
Despite the potential for rebound, some top traders recommend staying away from the long side of the market. “We would suggest caution in approaching the long side given the fact that cash prices remain at significant discounts to the nearby screen, a discount that is likely to remain intact in view of relatively mild temperature expectations well into next week,” advised Jim Ritterbusch of Ritterbusch and Associates. He noted that with electrical generation demand quickly becoming a non-issue to this market, day-to-day price swings are likely to become a battle between conflicting forces of storm related buying and selling in response to a continued large supply overhang.
Storm-related buying is quickly slip-sliding away even as Tropical Storm Florence is forecast to intensify. AccuWeather predicts the storm will reach major hurricane status, but will veer away from the U.S. east coast after pounding Bermuda.
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