After weeks of blown storage report estimates that called for larger withdrawals than were actually revealed (see Daily GPI, Jan. 7), most of the energy industry was on target on Thursday as the Energy Information Administration (EIA) reported that 153 Bcf was removed from underground storage for the week ending Jan. 1.
The result on natural gas futures was a temporary boost to the upside after trolling lower values in pre-report trading. Just prior to the 10:30 a.m. EST report, February natural gas futures were trading at $5.891. In the minutes that immediately followed, the prompt-month contract shot to a high of $6.065 before trickling lower for the remainder of the session to close at $5.806, down 20.3 cents from Wednesday’s regular session finish.
Some market watchers pinned the pullback to forecasts that temperatures should be returning to normal in a number of gas using regions of the country in the near term. “Traders could be responding to the fact that we are likely going to say goodbye to the colder-than-normal temps at least for a little bit next week,” said a New York trader. “However, you have to remember that we are only going to return to normal, not above-normal conditions. On top of that there is another cold front poised to come right back in, so don’t go putting your heavy jackets away any time soon.”
While the near-term forecast has some warming, there appears to be no immediate letup to the brutal cold, which has pushed as far south as the Rio Grande Valley in S South Texas. “Snow and strong winds will blast the Midwest with a renewed batch of arctic air following close behind,” said Mike Chesterfield, lead meteorologist at The Weather Channel. He added that snow would be shifting eastward to the Ohio Valley and eastern Great Lakes by late Thursday with areas such as Milwaukee and Chicago receiving six to 12 inches of snow. For the next four days the high in Chicago is expected to be no higher than 24, eight degrees below normal. The high in San Antonio, TX, Thursday was forecast to reach only 44 degrees, 17 degrees below its normal high.
Quantitative traders couldn’t care less about weather-driven price changes. The early price swings this week have generated mixed results for energy hedge funds. “We are starting off the year kind of choppy, and the short-term model has not been that active, only a couple of hundred trades a day. Shorter-term models are saying the market could go a little higher from here, and the longer-term model [multi-week] is looking for a top,” said a Texas fund manager.
Citi Futures Perspective analyst Tim Evans called the storage draw “on expectations,” adding that his own call was for a 145 Bcf pull. “The 153 Bcf [draw] was very close to the consensus expectation, and so the battle resumes over whether this week’s cold will produce a more remarkable storage withdrawal or whether next week’s warming trend will count for more,” he said. “The draw was large compared with the 78 Bcf five-year average, but that much should have already been discounted into the price.”
Heading into the report, a Reuters survey of 24 industry players produced withdrawal estimates from 129 Bcf to 170 Bcf with the average pull expectation coming in at 151 Bcf. Bentek Energy projected a withdrawal of 137 Bcf. In addition to out-classing the five-year average figure, the actual 153 Bcf draw also blew away last year’s date-adjusted 61 Bcf pull for the week.
As of Jan. 1, working gas in storage stood at 3,123 Bcf, according to EIA estimates. Stocks are 286 Bcf higher than last year at this time and 316 Bcf above the five-year average of 2,807 Bcf. The East Region led the charge for the week by removing 93 Bcf while the Producing and West regions withdrew 41 Bcf and 19 Bcf, respectively.
Looking ahead, some analysts believe storage gas will continue to be removed at a faster pace than was seen the last five years, when the United States saw relatively mild winters with above-normal temperatures.
“A 10% colder-than-normal winter adds 500 Bcf of demand. So far this winter (through Jan. 1), U.S. temps have been 1% colder than the 10-year norm (a cold December offset a warm November),” according to analysts at Tudor, Pickering, Holt & Co. Securities Inc. “That’s a fixin’ to change as weather in the first half of January is forecast to be 30% colder than normal, bringing the average through mid-January to 8% colder than normal (assuming the forecasts turn into reality). Through mid-January, winter is only 40% complete, so there is still lots of variability (weather can go either direction).”
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