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Worldwide Commodity Implosion Sends Cash, Futures Lower
Physical natural gas prices fell nationally on average by approximately 6 cents in Thursday’s trading for Friday delivery, and although futures traders usually get their deals done prior to the release of storage data, the July contract was already down 6 cents prior to the release of the government inventory data.
Traders attributed the early weakness to a broad decline in all commodity contracts. Metals, agriculture, energies, and stock index futures were all falling fast prior to the release of Energy Information Administration (EIA) storage figures. The report was considered ever so slightly bearish at 91 Bcf, only nominally greater than industry expectations. At the close of futures trading July had shed 8.6 cents to $3.877 and August was 8.6 cents lower as well to $3.899. July crude oil careened lower $2.84 to $95.40/bbl. The Dow Jones Industrial Average fell 354 points to 14,758. Gold fell $97 to $1,277/oz.
Points in the East suffered double digit losses. Deliveries on Dominion fell 16 cents to $3.61 and on Tetco M-3 gas for Friday delivery shed 12 cents to $3.85. Gas bound for New York City on Transco Zone 6 fell 11 cents to $3.90.
Forecaster Wunderground.com said Thursday’s high in Boston of 81 would slide to 77 Friday but jump back up to 90 by Monday. The seasonal high in Boston is 78. In New York City Thursday was expected to see a high of 81 also and 81 on Friday before rising to 86 by Monday. The normal high in New York City is 81. Philadelphia’s 86 high on Thursday was anticipated to slide to 79 on Friday before jumping to 91 by Monday. The normal high in Philadelphia this time of year is81.
Kari Kiefer, Wunderground.com meteorologist said a “high pressure system over the Ohio Valley and Northeast will bring dry conditions to the area, while the Southwest will be dry and warm once again. The Northeast will rise into the 70s and 80s, while the Southeast will see temperatures in the 90s and 100s.”
In Texas declines were more modest. At Carthage next-day deliveries fell 2 cents to $3.82 and gas on El Paso Permian shed 6 cents to $3.65. Transco Zone 1 was six cents lower as well to $3.79 and Katy was seen 4 cents lower at $3.85. Quotes on NGPL TX OK dropped about 6 cents to $3.84.
Next-day gas at West Coast points fell as Pacific Gas and Electric declared an Operational Flow Order system wide for Friday due to high inventory. Gas for delivery Friday to the PG&E Citygates fell 4 cents to $3.94 and gas bound for the SoCal Citygates was seen about 9 cents lower at $3.99. SoCal Border quotes came in 6 cents lower at $3.82. Deliveries on El Paso S Mainline fell 6 cents to $3.87.
Futures traders were unwilling to call the market’s weakness the result of a slightly unsupportive storage report. “I just think it’s a worldwide bloodbath in commodities [prices],” said a New York floor trader. “Natural gas just got caught up with everything else.”
“There isn’t one commodity I’m seeing that is positive right now. The only thing I am seeing that is positive is the dollar index. It’s the first time gold has been below $1300 in a year and the first time silver has been below $20 in years.”
“Whatever Bernanke said yesterday wasn’t so positive for any market. I think natural gas will follow what the rest of the world does. At least for the next couple of days,” the trader said.
Analysts studying supply-demand balances to determine the weekly gas storage numbers from EIA expected to see their estimates close if not right on target. The estimates had a somewhat bearish cast to them inasmuch as last year 63 Bcf was injected and the five-year average was 80 Bcf. Analysts at United ICAP calculated an 89 Bcf build, and a survey by Bloomberg showed an average 89 Bcf increase as well. Bentek Energy, utilizing its flow model, expected a build of 84 Bcf.
“No surprise this week. There, we said it. Nothing in our tea leaves suggests anything even remotely resembling a surprise out of EIA this week (a report of 5 Bcf or more above/below the consensus),” said John Sodergreen, editor of Energy Metro Desk (EMD). His figures show that the difference between the three categories he follows is minimal, thus suggesting that the EMD survey, 90 Bcf, is likely to be right on the money. “The HDD/CDD is right in there with recent weeks and the holiday affect should have worked itself out of the system by now.”
Risks to the forecast, however, are always out there. Bentek told NGI that “There are both high-side and low-side risks to this week’s 84 Bcf forecast. The high-side risk is with the Eastern Region, which had net sample storage remaining largely flat besides NGPL and ANR’s complete system activity, which both have facilities that fall in the Producing Region. Week-over-week population-weighted CDDs in the East Region fell from 36 to 31 as temperatures cooled, especially in the Northeast. Conversely, CDDs rose from 76 to 95 in the Producing Region week-over-week, increasing Bentek’s power burn estimate in the region by over 1.0 Bcf/d week-over-week and generating risk to the low side for the forecast as sample injections fell week-over-week; several facilities reported withdrawals for late in the storage week as temperatures rose,” the firm said.
Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile saw the market testing Wednesday’s value area at $3.971 to $3.947 before “eventually” reaching value areas at $3.936-3.880, $3.856-3.816, and $3.774-3.744. In Wednesday’s trading, the high for the July contract breached the upper bound of the week’s initial balance at $3.952. According to Market Profile methodology, cards are now in place for an advance to test the initial balance 50% targets higher at $4.022 and the 100% target at $4.088.
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