While coming in well within industry projections, the Energy Information Administration’s (EIA) natural gas storage report for the week ended Dec. 24 slashed the running surplus compared to last year’s level as well as the five-year average. The EIA reported that 178 Bcf was pulled from underground storage for the week.
In the abbreviated holiday trading session Thursday, February natural gas futures took the news bearishly, dropping 24 cents from pre-report trading levels to $6.16 as of 10:38 a.m. (EST). After rebounding back up to trade at $6.27 just before noon, the prompt month headed lower again, recording a low of $6.10 before settling at $6.149, down 25.3 cents. Spot month natural gas settled 51.9 cents lower than the previous Thursday close.
“I don’t know who these traders are, but there appears to be a trend here. If the market goes up in the last two minutes before that number comes out, the market will go the other way dramatically once the report hits,” said Tom Saal of Commercial Brokerage Corp. in Miami. “People bid the market up thinking they know what the report will show, then it blows up in their face. There isn’t a lot of liquidity.” Estimated volume reflected this point Thursday as 32,871 contracts swapped hands.
Just prior to the 10:30 a.m. report release, February natural gas climbed from $6.31 to a high of $6.405.
“We’ve traded down to $6.16 pretty fast on fund selling,” Saal added. “The funds are really just piling on here.” As for support below $6.16, Saal said he is looking at the $6 to $5.95 level sometime this week.
Citigroup’s Kyle Cooper came close to calling the withdrawal amount. He was projecting a 173-183 Bcf pull. ICAP’s storage options auction on Wednesday revealed an implied market forecast of a 184 Bcf draw.
The withdrawal reduced the surplus to the 2,491 Bcf five-year-average by 35 Bcf to 358 Bcf. It also reduced the surplus over year-ago stocks by 98 Bcf to 230 Bcf.
Working gas in storage now stands at 2,849 Bcf, according to EIA estimates. The East region reported a 113 Bcf withdrawal for the week, while the Producing and West regions withdrew 50 Bcf and 15 Bcf, respectively.
In addition to natural gas, heating oil and crude also recorded down days Thursday. January heating oil was down 4.77 cents at $1.2297/gallon, while February crude closed 19 cents lower at $43.45/bbl.
Now it appears that the only thing that could shake natural gas prices would be a prolonged period of colder than average weather, which does not appear to be in the near-term outlooks.
In its six- to 10-day weather forecast released Wednesday, the National Weather Service forecasts normal to above normal temperatures in populous Midwest and eastern markets. The normal to above normal temperatures are expected east of a line extending from central Texas to eastern Wisconsin, while areas west of that line are expected to experience below normal temperatures.
The eight- to 14-day outlook looks much the same, with the entire East experiencing warmer than normal weather.
Unless more cold finds its way into the U.S., natural gas storage reports over the next few weeks could return to the trend of increasing the current surplus. However, in order to do so, this week’s storage report will need to show either a small withdrawal or a small build. Last year’s withdrawal for the week ended Dec. 31 was 52 Bcf, while the five-year average for the week is actually a build of 32 Bcf.
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