Coming in well within industry expectations, the Energy Information Administration (EIA) reported Thursday morning that 162 Bcf was withdrawn from underground stores for the week ended Dec. 23. The report fell on mostly deaf ears within the industry as February natural gas futures worked lower into the afternoon to settle at $11.223, down 41.4 cents from Wednesday’s close.
Despite the release of petroleum and natural gas inventory reports Thursday, market activity was somewhat sparse as traders were already getting a head start on the New Year’s holiday weekend. The New York Mercantile Exchange is closing at 1 p.m. on Friday and will be closed on Monday.
“It appears that I’m not the only person who won’t be coming in tomorrow — and if the last few hours is any indication; thinning choppy conditions — it could be just as well,” said enerjay LLC broker Jay Levine.
Coming into its first regular session as prompt month, February natural gas dropped 32.7 cents from its Wednesday settle to open Thursday at $11.310. Following the storage report and a period of trade in the $11.30s to $11.40s, the prompt month inched higher to put in an $11.660 high just before and just after noon EST. In the afternoon, futures rambled lower, notching a low for the day of $11.180 before settling.
Since notching a contract high of $15.780 on Dec. 13, February natural gas has dropped $4.557 through Thursday.
“The storage number was identical to last week’s number and was well in line with the industry consensus,” said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. “You have to wonder whether the market didn’t react because the number was expected, or whether traders just want to get this year over with. I don’t know which one it is.
“It looks like we are still trying to work a little bit lower,” Saal said, noting that the February contract hovered for a while Thursday around January’s $11.431 expiration on Wednesday. “I think the sentiment is still lower at least for the rest of this week. Following the three-day weekend, we’ll have to see what the weather forecasts are saying and we could see price direction changes. At this time of year, people realize that there could still be some nasty weather this winter. I think that is why we haven’t traded down below the Hurricane Katrina gap,” which spans $10.075 to $10.650.
Addressing Wednesday’s 40+ cent bounce, Saal said little rallies here and there are expected. “We had that $4.00+ drop without much, if any, rallies, so the people who were short just waited till the last day to cover. Despite the rally, the market’s closing range on Wednesday actually stalled out the rally.”
Other market experts noted that current weather forecasts could allow for a little more price slippage heading into the new year. “The weather remains quite bearish,” said Kyle Cooper of Citigroup. He added that the storage withdrawal for the week ended Dec. 30 and even the withdrawal in the first week in January are unlikely to exceed 100 Bcf. “Unless the weather turns much colder in the middle of January, which is certainly possible, prices are headed much lower,” he said.
The latest weather forecast released by the National Weather Service (NWS) on Thursday showed that a little more cold is likely to creep into the East during the Jan. 4-8 period. The NWS said that while two-thirds of the country — from the West towards the East — will still be experiencing warmer than normal temperatures, the colder than normal conditions in Florida are likely to push as far north as southern Pennsylvania. A strip running from Louisiana all of the way to New England is expected to see normal temperatures for this time of year.
The storage report released Thursday for the week ended Dec. 23 really couldn’t have been predicted much better. Most industry withdrawal estimates had been focusing on the 154-167 Bcf range, although some are calling for a withdrawal as small as 125 Bcf or as large as 185 Bcf. Wednesday afternoon’s ICAP-Nymex storage options auction, which allows traders to hedge against or bet on the storage number, predicted a 165 Bcf withdrawal for the week.
The number revealed Thursday came in just below last year’s 170 Bcf withdrawal, but well above the five-year average withdrawal of 131 Bcf.
As of Dec. 23, working gas in storage now stands at 2,640 Bcf, according to EIA estimates. Stocks are 234 Bcf less than last year at this time and 33 Bcf above the five-year average of 2,607 Bcf. The East Region recorded a 106 Bcf withdrawal, while the Producing and West regions pulled 43 Bcf and 13 Bcf, respectively.
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