While an outright bearish natural gas storage report was needed to stem the recent meteoric rise in futures prices, traders received no such help Thursday morning as the Energy Information Administration (EIA) reported a slightly bullish 43 Bcf injection for the week ended Aug. 5.
As a result, September natural gas futures were off to the races once again on Thursday, breaking higher on continued bullish fundamentals with a supportive nudge from the skyrocketing petroleum futures complex, which saw the September crude contract reach a record $66/bbl before settling at $65.80, up 90 cents in Thursday’s session.
September natural gas futures jumped 10 cents to trade at $9.150 in the minute following the storage report’s release. After the contract paid a short visit down to $8.990, it was up, up and away for the remainder of the session. September natural gas put in a high of $9.350 before settling at $9.301, up 23 cents from Wednesday’s close.
The last time prompt month natural gas settled higher was on Feb. 25, 2003, when March futures put in a high of $10.10 before settling at $9.577.
Traders approached Thursday with an anything-can-happen outlook following the record setting day Wednesday. September natural gas settled at $9.071, up a whopping 42.2 cents on Wednesday.
Early in trading Thursday morning, Advest Inc.’s Jay Levine warned that Thursday could see swings of “50+ cents in either direction,” which would be par for the course. “Anything less would be a disappointment,” he added, referring to the market’s recent lively activity.
ICAP Energy’s Brad Florer said, “The understatement of the year is that ‘the bulls are firmly in control.'” Noting that he believed the storage report was slightly on the bullish side, Florer added, “At this point, unless you get bearish news, it’s bullish. There are no sellers out here…no one willing to step in front of this thing other than people who are long and taking profits. There is absolutely no bearish news to look at, and the weather for much of the country remains downright hot. So you have all of these things just driving the market, and it has become relentless at this point.”
While admitting that the crude futures’ jump is part of the equation, Florer said the natural gas futures increase has by no means been primarily driven by petroleum. “I think this run-up is driven a lot by people who are worried about what is going to happen to supply with the fundamentals that are currently in place,” the broker said. “Obviously, we started the summer in incredible shape and now we have gotten down to a more normal situation. I believe people are worried what is going to happen now.”
He emphasized that this hasn’t just been a natural gas prompt month rally. “It’s a very broad rally that I think boils down to the fact that there are supply and demand issues in place and we are looking at a market that is looking at a whole new worldwide economical situation,” Florer said. “There is no margin out there on the supply side in the energies. I think there is a lot of fear in the natural gas market that this thing could really spike a lot higher. I believe that has sellers locked up right now, which keeps it going higher.”
As for how high this thing can go, Florer said that really is “the holy grail of questions,” noting that $9.20 was a big level, but futures closed above it Thursday. “Next on the list of big levels is $9.44, then $10.10, then after that we are in completely uncharted waters. It really becomes how bad do the shorts get squeezed at that point.”
Taking notes from the past, Florer said it is going to remain a driving, dominant run up until people decide a high has been put in, then it will turn and become “everybody out of the pool” as it drops. “At that point, we are going to find out where this stuff needs to be priced,” he said. “Until then, I don’t know how you talk your boss into letting you go short here.”
The storage report released Thursday did have a slight bullish ring to it. The ICAP-Nymex storage options auction on Wednesday revealed a consensus forecast of a 48.5 Bcf injection, and the injection was extremely bullish compared to historical numbers. The 43 Bcf injection fell well below last year’s 74 Bcf build and the five-year average injection of 64 Bcf.
Working gas in storage now stands at 2,463 Bcf, according to EIA estimates. The surplus to historical marks continued to fall this week. Stocks are now 21 Bcf higher than last year at this time and 149 Bcf above the five-year average of 2,314 Bcf.
The East Region injected 39 Bcf into underground stores, while the Producing and West regions chipped in 3 Bcf and 1 Bcf, respectively.
The relatively low injection of Thursday’s EIA report may increase next week. Midwest temperatures are expected to moderate from readings in the low 90s earlier in the week. The Weather Channel forecasts highs in Chicago of 81 Thursday rising to 84 by Friday. By Sunday highs in the Windy City should reach a temperate 78. Further east, however, Philadelphia’s high of 94 Thursday is forecast to ease to only 92 by Sunday.
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