September natural gas futures suffered a double-digit drubbing Thursday as the release of fresh storage inventory data revealing another large injection of 77 Bcf served to further allay concerns of a supply shortfall.
The September contract nose-dived 24.6 cents to settle at $6.106, and the October contract was pummeled for 24.8 cents to finish the day at $6.316. The Energy Information Administration (EIA) reported additions to supplies of 77 Bcf, right near the top of traders’ 60-79 Bcf range of expectations. Stocks now stand at 2,840 Bcf, ahead of last year’s 2,772 Bcf and the five-year average of 2,430 Bcf.
“Nothing happened when the (EIA) number was released. It was pretty much right on expectations,” said a New York floor trader. He added that Citigroup was a featured seller of the September contract and traders expected the market to find technical support in the $6.10 area.
“This report confirms what we already knew; that there is no shortage of gas out there,” commented Commercial Brokerage’s Ed Kennedy following the release of the inventory data. “The funds are short and remain good sellers to protect their position. Meanwhile, we saw some utilities out there again today hedging against the [tropical storm threat] by entering the market as scale-down buyers.”
That said, Kennedy believes the market is in a bit of a stalemate right now in the $6.00-6.85 trading range. Though bullish factors such as increased tropical storm activity and forecasts calling for a mini-heat wave for the East Coast right now suggest higher prices, the ample amount of gas in storage is proving to be a big enough disincentive to would-be buyers, he reasoned.
“It will take the funds covering their 70,000 net short positions to push this market significantly higher, and I just do not see that happening unless or until there exists either a serious tropical threat to Gulf of Mexico production or a break above $6.85,” he said.
A prominent meteorologist sees the disturbance in the eastern Caribbean as a nonfactor. “The disturbance that is near Barbados is not going to be a factor in the weather picture for the United States or the Gulf of Mexico,” said Joe Bastardi of AccuWeather. He added that it has little chance to develop, but “there is still a 12- to 24-hour window when it could ramp up.”
Bastardi did say, however, “the pattern off the south Atlantic coast next week is something that raises my eyebrows. We have a couple of African waves that will be arriving in that area the middle of next week. But what makes me most suspicious is the overall pattern, which is something that would have me looking in that area next week given what I am seeing.”
The National Weather Service in its six- to 10-day forecast shows a broad area of above-normal temperatures encompassing key eastern and Midwest energy markets. North and east of a broad arc extending from eastern Montana to the panhandle of Texas to New Orleans is forecast to be above normal. Only Maine and southernmost Florida are expected to be normal. West of a north-south line running from western Montana to eastern Arizona is anticipated to be below normal.
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