Strong after-hours Access trading Wednesday led to a 23.5-cent gap higher on the September contract at the open Thursday morning. The 57 Bcf injection into storage last week reported by the Energy Information Administration (EIA) triggered a brief 10-cent hiccup to a regular-session high of $7.20 at 10:30 a.m., but the market then succumbed to selling pressure still ending the day with a 20.4-cent gain at $7.079.
The contracts for January through October 2007 all slipped slightly lower Thursday because of the continuing massive spreads between the front months and back months.
Nevertheless, market bulls saw the near-month settlement over $7 as a key victory. Tropical Depression Five in the Caribbean near the Windward Islands and higher cash prices due to strong power generation demand from the continuing the heat in the South provided good reason for the futures rally. With prices averaging in the low $7.20s at the Henry Hub, the cash market remains above near-month futures, which are scheduled to go off the board next Tuesday.
“The real reason for this is cash,” said Ed Kennedy of Commercial Brokerage. “Cash is really strong. Henry Hub cash right now is $7.23-7.25 so it’s trading over the screen and that’s what is pulling us up. And the background noise is the tropical wave that is going over the Windwards.”
Kennedy said he expects near-month futures to be well into the $7.20s “before we go home” for the weekend. The tropical depression will “keep the sellers in the headlights until we find out where it’s going. Some of the forecasts are saying in three to four days it will go into the strait between Cuba and Mexico and into the Gulf. We’ll have to wait until Sunday or Monday to find out for sure.”
The National Hurricane Center (NHC) said at 5 p.m. EDT Thursday that it expected the tropical depression, which was slightly west of the Windward Islands, to become a tropical storm on Friday. The NHC forecasts that the storm will reach the tip of the Yucatan Peninsula by next Tuesday potentially passing into the Gulf of Mexico by the middle of next week.
“We’re just entering the meat of the hurricane season,” noted enerjay broker Jay Levine. “It’s the time when anything can happen and probably will. I think the market recognizes that. I think the cash market has helped futures to some extent. With a 20-cent increase today and a closing over $7, you don’t have to be flamingly bullish to feel that way. Technically it looks constructive.”
The tropical situation and cash strength overshadowed the storage report Thursday. The 57 Bcf injection was in line with most expectations, which ranged from a low of 39 Bcf to about 70 Bcf. The ICAP storage options auction had predicted a 60 Bcf injection and Bentek Energy had estimated a 62 Bcf build based on data from interstate pipelines across the country. Some may have seen the injection as being on the low end. It fell short of the 58 Bcf injection during the same week last year and was 10 Bcf less than the five-year average injection.
However it was 20 Bcf more than the last weekly injection and working gas levels at 2,857 Bcf are 13.5% above the five year average and 11.3% above levels at the same time last year. A 48 Bcf injection in the key East region puts working gas 13.4% above levels last year and 14.1% above the five-year average. Injections of 7 Bcf and 2 Bcf in the West and Producing regions, respectively, put working gas in those regions about 13% above the five-year average.
However the heat this week is likely to make the next weekly injection slightly lower, according to Bentek Energy’s U.S. Power — Gas Burn Report.
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