Dominick Chirichella: Natural Gas Prices Remain Firm

In spite of the downside miss in the weekly EIA Nat Gas inventory report the market has been in rally mode as prices have currently cleared the $4.16/mmbtu resistance area for the spot Nymex contract. Although the temperatures have been warmer the eastern half of the US has not yet seen consistent spring like temperatures which is keeping the bulls interested in pushing prices higher. In addition, the fact that total inventories are now 32.5 percent below last and 3.8 percent below the so called normal or five year average for the same week has put the market on alert that any unscheduled supply interruptions or sudden demand surges will send prices strongly higher.

The Nat Gas futures contract is entering a trading zone that has not been seen since the middle of 2011 or before the large imbalance of supply over demand started to take hold. If the spot contract can remain above the $4.16/mmbtu level it has a relatively clear area all the way to around the $4.40/mmbtu level. From a technical perspective the market is clearly in a bullish pattern as long as the spot contract remains above the new support level of around $4.16/mmbtu.

From a fundamental viewpoint the market is in the midst of a changing weather pattern as most of the country starts to experience spring like temperatures against a backdrop of the inventory cushion now solidly below normal as well as strongly below last year at this time. The fundamentals are going to have to provide support for the technical to remain in the new higher trading range.

The latest six to ten day and eight to fourteen day NOAA forecasts are providing a modest level of potential fundamental support as both forecasts are now projecting a large portion of the middle section of the US expecting below normal temperatures for the April 17th to April 25th timeframe. The forecast does not mean that there will be a significant amount of heating demand but it does mean there will be some in various parts of the country and it could result in injections coming in below both last year and the five year for the same timeframe thus widening the deficit further versus current levels.

Yesterday's EIA report was bullish versus the historical data but neutral to slightly bearish versus a comparison to the market consensus. The report showed a net withdrawal that was below the market expectations but greater than both last year and the five year average net injections for the same period. The 14 BCF withdrawal (strongly atypical for this time of the year) was below the market consensus calling for a withdrawal of around 21 BCF. The draw of 14 BCF was very near my model forecast (-15 BCF withdrawal) this week. The year over year inventory situation remains in a strong deficit position versus last year and has widened this week while the deficit versus the more normal five year average has also widened. The current inventory deficit came in at 66 BCF versus the normal five year average or about a negative 3.8 percent.

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Time to catch up on the Trend Jumper trades from this week
 

Weekly EIA Natural Gas Storage Report

Working gas in storage was 3,813 Bcf as of Friday, November 6, 2009, according to EIA estimates. This represents a net increase of 25 Bcf from the previous week. Stocks were 350 Bcf higher than last year at this time and 409 Bcf above the 5 year average of 3,404 Bcf. In the East Region, stocks were 118 Bcf above the 5 year average following net injections of 8 Bcf. Stocks in the Producing Region were 223 Bcf above the 5 year average of 976 Bcf after a net injection of 10 Bcf. Stocks in the West Region were 67 Bcf above the 5-year average after a net addition of 7 Bcf. At 3,813 Bcf, total working gas is above the 5-year historical range.

Note: The shaded area indicates the range between the historical minimum and maximum values for the weekly series from 2004 through 2008.
Source: Form EIA-912, "Weekly Underground Natural Gas Storage Report." The dashed vertical lines indicate current and year ago weekly periods.

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Weekly EIA Natural Gas Storage Report

Working gas in storage was 3,734 Bcf as of Friday, October 16, 2009, according to EIA estimates. This represents a net increase of 18 Bcf from the previous week. Stocks were 397 Bcf higher than last year at this time and 432 Bcf above the 5 year average of 3,302 Bcf. In the East Region, stocks were 114 Bcf above the 5 year average following net injections of 11 Bcf. Stocks in the Producing Region were 252 Bcf above the 5 year average of 935 Bcf after a net injection of 5 Bcf. Stocks in the West Region were 65 Bcf above the 5 year average after a net addition of 2 Bcf. At 3,734 Bcf, total working gas is above the 5 year historical range.



Note: The shaded area indicates the range between the historical minimum and maximum values for the weekly series from 2004 through 2008.