January natural gas plunged Wednesday as traders attempted to factor in an ever-increasing storage surplus and noted continued mild weather projections. At the close January had tumbled 14.3 cents to $3.136 and February had fallen 13.4 cents to $3.187. January crude oil imploded $5.19 to $94.95/bbl.
Thursday’s government storage report is expected to highlight the ongoing storage glut and estimates of the withdrawal fall well short of historical norms.
A survey run by Energy Metro Desk showed a 91 Bcf average draw for this week, but the range of estimates is wide. “My range is a 78 Bcf draw to 104 Bcf,” said John Sodergreen, editor.
“I think the wideness of the estimates has less to do with weather demand and has more to do with trying to second-guess what the EIA [Energy Information Administration] number is going to be. The estimates have been so far off the last few weeks that guys are saying, ‘Well, last week most of the world was around an 8 Bcf withdrawal and the number came out [as] 20 Bcf,’ so they introduce a large fudge factor. It’s an adjustment they make that keeps the range wide.”
Fudge factors or not, many estimates for the week ended Dec. 9 are in the range of an 80 Bcf to 90 Bcf withdrawal. This is problematic as the storage surpluses keep growing and put pressure on the market. Last year 154 Bcf was withdrawn and the five-year average stands at a 142 Bcf pull.
A Reuters poll of 26 analysts showed an average draw of 93 Bcf with a sample range of 68 Bcf to 110 Bcf. IAF Advisors in Houston calculates a decline of 88 Bcf, and industry consultant Bentek Energy predicts a pull of 98 Bcf and thinks the number could be even greater.
Bentek said in a report that it considered its estimate could have most of the risk to the downside this week. “The East Region withdrawal could become larger as has happened under similar circumstances. At least twice previously during late November or early December, a withdrawal of more than 50 Bcf has been reported by EIA with a similar sample size.”
Technical traders Tuesday queried whether the small 2.5-cent gain staged by the January contract represented simply a response to deeply oversold conditions or signs that the market might be ready to establish a base. “Relief rally for the oversold intraday RSI [relative strength indicator] or major bottoming action?” wondered Brian LaRose of United-ICAP. “The January contract has a lot of work to do. To even suggest the latter, $3.588 (0.7862 of $3.689-3.217) must be breached. Until this can be accomplished, we will be reluctant to back the case for bottoming. Sink below $3.217 before $3.588 can be exceeded and we will have confirmation lower lows are still needed before any possibility of bottoming action.”
More fundamental traders are looking out to the end of the month when they see storage becoming more balanced and the surplus less likely to keep increasing. Tim Evans of Citi Futures Perspective sees the current 307 Bcf year-on-five-year average storage surplus from Dec. 2 expanding to 431 Bcf as of Dec. 23 before falling back to 410 Bcf by Dec. 30.
“We would note that the comparison for the week ending Dec. 30 looks supportive compared with the five-year average, suggesting at least a break in the run of consecutive bearish comparisons. The caution, though, is that the 11- to 15-day temperature outlook tends to be volatile and so while it looks more supportive now, another shift in the forecast and we could be right back to the more neutral comparison of a day ago.” Evans is recommending standing aside until a low-risk trade can be identified.
MDA Information Systems in its six- to 10-day forecast shows a broad swath of above-normal temperatures extending from Montana and North Dakota south and east and widening to encompass the entire East Coast from New England to Florida.
“The forecast has turned warmer across the Midwest and East, as a storm track from the Plains to Great Lakes looks more certain among guidance. This storm track should repeat itself both early and again late in the period, with plenty of warmth being ushered northward on southerly winds ahead of the systems. The guidance is in good agreement on a decent cold shot coming into the South late in the wake of the second storm system, with just marginal cooling following the earlier system. The pattern continues to be influenced by the lack of blocking, limiting cold threats over the eastern half.”
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