Natural Gas Traders With Storage Bets: 'Ready, Aim … (Mis)Fire?'

It was such an odd and bizarre miss, that some in the natural gas trade have just taken to calling it  “a fluke” — for those wanting higher prices. 

Yet, there’s a risk that the 18 billion cubic feet storage build reported by the US Energy Information Administration, or EIA, for the week ended Aug 18 — versus the 33 bcf forecast — could recur in the agency’s latest inventory report due later today, with a different set of numbers, of course.

Houston-based energy markets advisory Gelber & Associates raised this possibility in its daily note on the gas market, citing also uncertainties hereafter from Hurricane Idalia, which sent gas futures rallying 10% on Wednesday to a two-week high of $2.829.

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Sunil Kumar Dixit, chief technical strategist at SKCharting.com, said gas futures could aim for $3 next.

“The current bullish rebound holds above horizontal support tied to the 50-day EMA, or Exponential Moving Average, of $2.62,” Dixit said. 

For further upside, he said, the front-month gas contract on the New York Mercantile Exchange’s Henry Hub needs to clear through $2.83 to reach the swing high of $3.01, which dynamically aligns with the descending 200-day SMA, or Simple Moving Average, of $3.03.

“A decisive breakout above this zone will eventually extend the bullish momentum targeting the 100-month SMA of $3.24, followed by the 50-week EMA, dynamically positioned at $3.46.”

“Failure to clear through $3.01 will resume downward correction towards the 50-day EMA of $2.62 and extend lower to fill the runaway gap left at $2.55, as seen on a 4-hour time frame (below).”

Gelber & Associates said gas prices could swing if the EIA reports a sharply lower storage build for last week than forecast. 

“After a sharp miss across the board by analysts for storage release last week, this week’s report will provide confirmation as to whether last week’s surprisingly low number was a fluke or if it marked the beginning of an acceleration towards the 5-year average,” the energy research house said in its outlook, adding: 

“As a result, the market may see substantial volatility tomorrow should there be another lower-than-expected injection.”

John Sodergreen, the author of a weekly trade journal on natural gas called “The Desk,” weighed in with his own thoughts on this in his latest note:

“Before we discuss last week’s surprise misfire report out of EIA (18 bcf, indeed)  we thought we’d serve up some other week-on-week factoids that might also confound  everybody this week,” Sodergreen wrote.  

“The south-central region – and  all things supply and demand – were said to be last week’s tough nut to figure given the 18-bcf build reported. Most surveys pointed  to almost double that.

The south-central regional draw was nearly 10 bcf deeper than expected. For this week’s report, not much  has changed on any of it.”

The consensus among Investing.com’s forecasters on natural gas storage for the latest week ended Aug 25 shows a likely build of 25 bcf.

More Unknowns With Hurricane Idalia/h2

But some are holding out for a larger storage number in the coming weeks as the impact of Idalia on power demand remains unknown. Idalia made landfall as a Category 3 storm in Florida’s Big Bend area.

The hurricane cut power to more than 64,000 Duke Energy (NYSE:DUK) Florida customers by midday Wednesday, with more power outages and damage likely to occur as the storm continues to exit the state, the utility said.

Duke indicated restoration efforts can be slowed by high winds and widespread flooding, and customers in areas hardest hit by Idalia “should prepare for extended power outages and extensive damage.”

NextEra Energy (NYSE:NEE) subsidiary Florida Power & Light Co. said it had restored power to more than 100,000 customers by early Wednesday. About 28,000 customers remained without power, but more outages were expected to occur. The utility said it expected to have the power back on for at least 95% of customers in southwest Florida by the end of Wednesday.

Florida Power serves about 5.7 million gas and electric customers. Its CEO Armando Pimentel, in comments carried by naturalgasintel.com, another trade journal: 

“We prepare all year for hurricane season, and we are ready to bring the lights back on for customers safely and as quickly as possible and get through these challenging days ahead together.” 

Given the unknowns around Idalia, SPGlobal said it thought a build of 35 bcf for last week’s storage should be right on the money. 

“A 35-bcf injection for the week ended Aug. 25 would imply that US supply-demand balances were approximately 2.4  bcf/d tighter than during the week ended Aug. 18, giving way to a larger inventory build.” 

Many others this week are reading a less tight scene, week on week. For the week in progress, SPGlobal sees “looser balances, giving way to a larger storage injection to be for the week ending Sept. 1, estimated to be 44 bcf.” 

Criterion Research had a different take on the whole thing:

“The last few weeks have felt like we  have been chasing the storage number … too high one week, then  too low the next. It’s been tough to get our models dialed in  between the fundamentals, pipeline flows and temp regressions.”  

“Last week’s 18(bcf) injection was outside anything we thought was possible. This  week is also hard 9to forecast) because of the huge jump in natural gas power burn in ERCOT, SPP and MISO.

Even the magic eight ball  didn’t help this week.” In the end Criterion settled at 26 Bcf for  the week. “We came in higher, but have similar trepidation,” it said. 

Mobius Risk Group said that over the next couple of days, demand for natural gas in the power sector will be supported by a hot Texas with low wind output and conversely hindered by rain-induced demand losses in Florida, Georgia, and South Carolina.

“While these two forces  could offset one another or even be net higher overall on a weather-adjusted basis, the looming holiday weekend is not favorable for  upward price pressure.” 

Rhett Milne of NatgasWeather.com expects another “decently smaller-than-normal build” due to hot conditions last week. 

“The  following two builds will be slightly smaller than normal and the  build for the EIA report three weeks out would be smaller if not  for the Labor Day holiday (on Sept 4),” Milne said.

“If late-season heat continues for much  of September, as we continue to expect, surpluses are likely to be  reduced toward 190 bcf, if not a little smaller.”

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Disclaimer: The aim of this article is purely to inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables.