The natural gas industry was dealt another stout storage injection Thursday morning, but this time traders were ready. Following the report that 90 Bcf was injected into underground storage for the week ended Aug. 29, October natural gas futures bobbed lower to test support at $7 again before rallying to close at $7.322, up 5.8 cents from Wednesday’s close.
After going into the 10:35 a.m. EDT report trading at $7.172, the front-month contract knee-jerked lower to trade at $7.060 immediately following the report’s release. However, the reaction was short-lived as October natural gas values popped right back up a minute later. Futures bears made one more run lower in morning trade, notching a $7.023 low, before rallying for good.
“The 90 Bcf net injection was in line with market expectations, although still bearish compared with a 59 Bcf five-year average rise,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “Storage is now 102 Bcf above the five-year average.”
Commercial Brokerage Corp.’s Tom Saal said the storage number was right on target with industry estimates. “I thought the report was largely expected, but CNBC said it was bearish,” he said. “We dropped a bit on the number, but $7 is offering support. On the way down we found pretty good buying support at $8, and I think we are finding the same thing at $7. These even numbers historically have offered pretty good support or resistance.
“Storage is shaping up to be no real great concern,” he added. “The industry appears to be pretty comfortable with this $7-plus price level with what appears to be a more normal inventory level going into the winter…if nothing dramatically changes between now and then.”
Saal said a break below $7 is possible but he does not see much more than that. “I am not looking for a five in front of this thing, but I learned a long time ago in natural gas not to rule anything out. The minute you dismiss the possibility, you’ll see it happen.”
Going into the storage report, most estimators were not predicting another injection of the magnitude of the previous week’s 102 Bcf report. For the week ended Aug. 29, most market watchers were calling for a build in the high 80s Bcf to low 90s Bcf range. A Reuters survey of 20 industry players produced estimates from 70 Bcf to 99 Bcf with an average expectation of an 88 Bcf build. Golden, CO-based Bentek Energy said its flow model called for a 91 Bcf injection to be revealed.
In addition to besting the 59 Bcf five-year average injection, the 90 Bcf build also dwarfed last year’s 38 Bcf build.
As of Aug. 29, working gas in storage stood at 2,847 Bcf, according to Energy Information Administration estimates. Stocks are now 148 Bcf less than last year at this time. The East region injected 67 Bcf for the week while the Producing and West regions added 16 Bcf and 7 Bcf, respectively.
Lehman Brothers analyst Daniel Guertin said the weather has played a large role in the recent string of healthy storage injections. “This build represents yet another very high build for the month of August, but not as high as last week’s unexpectedly high build of 102 Bcf,” he wrote in a research note. “While the exceptionally warm month of August last year resulted in small net U.S. storage builds, this August has been much cooler, and this has been one of the factors contributing to the significant narrowing of the year-on-year storage deficit over the last few weeks.”
Guertin noted that injections for the next few weeks will be hard to predict due to the uncertain nature of the Hurricane Gustav-sparked outages.
“Widespread supply disruptions are still occurring along the Gulf Coast and in the Gulf of Mexico, despite the fact that Gustav weakened considerably as it moved ashore and landfall occurred three days ago,” the analyst added. “As of Wednesday afternoon, 92% of the U.S. offshore natural gas production was still shut-in, per the U.S. Minerals Management Service’s daily report. Over the next several days, more natural gas will slowly return to the market, but it will still be several more days, if not weeks, until full pre-Gustav natural gas output is restored. Natural gas supply curtailments this year have been the highest since 2005 (Katrina and Rita), and could approach the levels seen in 2004 (Hurricane Ivan) if the slow pace of natural gas production restoration continues into next week.”
On Thursday, the MMS said Gulf natural gas shut-ins were reduced to 87.5% (see related story).
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