The Energy Information Administration (EIA) reported Thursday morning that only 39 Bcf was injected into underground storage for the week ended Oct. 12. While the number was supportive of near-month natural gas futures initially, the November contract once again failed to settle above embedded resistance at $7.500, closing out the day’s regular session at $7.374, down 8.4 cents from Wednesday.
Prior to the 10:30 a.m. EDT report, November natural gas was trading at $7.499. Immediately following the storage number’s release the prompt month pushed to a high of $7.616. However, just before 1 p.m. EDT, the contract began to collapse, recording a $7.250 tick before moving higher to close. Thursday marked the third consecutive session breach of the $7.500 target and the third consecutive failure to settle above it, lending the resistance level even more credibility on the charts.
“Whether we can settle above $7.500 is a big deal here,” said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. “This is a number that a lot of technical people have been shooting for on the upside, so let’s see if this jump has some staying power. If we settle above that level, then $8 becomes a serious potential.”
Commenting on the 39 Bcf build, Saal noted that the report was a little on the low side. “There is no question that we have a lot of gas in storage, but I think the people who are looking for all-time record storage levels might end up disappointed,” he said. “The question now is how does the gas come out of storage in the months ahead. The most important factor for the month of November is how much gas comes out of storage. Obviously the injections are throttling back already, so we will have to see when withdrawals begin whether the storage operators are hoarding inventory or not.”
Leading up to this week’s storage report industry estimates were all over the place. The range of expectations ran from injections of 35 Bcf to 71 Bcf. A Reuters survey of 18 estimates was looking for an average injection of 56 Bcf, while Golden, CO-based Bentek Energy said its flow model indicated an injection of 35 Bcf.
According to the EIA, working gas in storage stood at 3,375 Bcf as of Oct. 12. Current stocks are a mere 86 Bcf below last year’s 3,461 Bcf record, which was set in the storage report for the week ended Oct. 20, 2006.
Current stocks are 59 Bcf less than last year at this time and 213 Bcf above the five-year average of 3,162 Bcf. For the week, the East region injected 25 Bcf and the Producing and West regions chipped in 9 Bcf and 5 Bcf, respectively.
Calling the injection “bullish,” Citigroup analyst Tim Evans was perplexed at how small the number was, especially considering recent demand, or the lack thereof. “The 39 Bcf net injection was low relative to expectations and also below the 54 Bcf injection from a year ago and the 63 Bcf five-year average,” he said. “We think this may reflect low LNG [liquefied natural gas] imports and broader supply restraint/pipeline issues, as demand was not remarkable.”
Others put the smallish injection figure in perspective with the rest of the energy picture. “While this certainly isn’t earth-shattering as far as existing fundamentals are concerned, and the whole complex is still susceptible to short-term reversals, especially since crude is making all-new record highs on a daily basis, from a psychological standpoint it probably doesn’t hurt (a longer-term bullish case) and puts natural gas closer on track for the short-squeeze, [which] we still haven’t seen in my opinion,” said Jay Levine, a broker with enerjay LLC.
Meanwhile, crude futures is doing all that it can to support natural gas prices. Yet again, November crude on Thursday moved to uncharted territory, reaching an all-time record high of $89.55/bbl before settling at an all-time record high of $89.47/bbl, up $2.07 from Wednesday’s close.
Levine tried to bring rationale to the crude/natural gas relationship. “Perhaps the only surprise is that natural gas hasn’t followed suit [with crude],” he said. “While similarities are merely coincidental and a case can be made that if not for crude making new record highs, natural gas would be a lot lower.” He added that while many participants still feel that it’s only a matter of time for natural gas to catch up, he does not agree, noting that it used to be a move of this magnitude would have already elicited a more pronounced response.
“Maybe it has something to do with natural gas storage about to enter the traditional withdrawal season in near-record fashion with expectations of the next few weeks merely adding more fuel (pardon the pun) to the fire,” Levine added.
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