September natural gas futures advanced smartly Thursday, helped by advances in equity markets and crude oil along with a government report showing that slightly less gas was injected into storage than anticipated. The September futures contract rose 19.5 cents to $3.743, and October gained 20.0 cents to $3.988.
September crude oil soared $3.59 to $66.94/bbl and the Dow Jones Industrial Average rose 83 points to close at 9,154.
“We may be getting a little life off of crude oil. It is up nearly $4 and it is also a big equity day, so those two combined with slightly less injections than expected and some short-covering helped send the market higher,” said an Oklahoma City-based broker.
The Energy Information Administration (EIA) reported that additions to inventories tallied 71 Bcf, just slightly less than the 73 Bcf estimated by independent polls conducted by Bloomberg, Dow Jones and Reuters. The pivotal question regarding inventories is whether they reflect a widely anticipated decline in production resulting from a much leaner roster of rigs looking for natural gas. For the week ended July 24 oilfield services giant Baker Hughes Inc. said the number of rigs targeting natural gas had declined to 675 from the year-ago level of 1,555.
Production figures show a slight decline. The EIA in its July Natural Gas Monthly reported that dry gas production for May was 57.55 Bcf/d, down slightly from April’s 58.13 Bcf/d but well above May 2008 production of 55.94 Bcf/d.
The Oklahoma City broker and others who use quantitative models to direct trading decision reported that Thursday’s activity has nearly caused the models to switch from bearish to neutral. “Today is a new surge. If September closes above $3.75, I would be out of any short positions and be giving some thought to going long,” the broker said.
He added that prices would have to go “over $4 to feel good about going long, and I would use the $3.75 area to place a stop-loss order.”
Prior to the release of the inventory data traders were circumspect as to whether a 73 Bcf injection had been factored into the market. “If the [inventory] report comes out Thursday and shows injections at what everybody is expecting, let’s see how it works. I have some local trader friends and they say at these levels, patience is the key,” said a New York-based broker.
“They say if the market reaches $3.75, they go in and short it and they will wait for 50 cents to the downside. If you look at the $3.25 area, then you’ve got $3.75 as a target sell area. The question is whether the market will bottom out here and head back. Everyone is talking bearish, bearish, bearish.”
EIA reported that the East Region had storage injections of 56 Bcf, the West Region a draw of 1 Bcf, and the Producing Region saw a build of 16 Bcf.
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