Natural Gas Moving into a Downtrend

Natural Gas prices have made a decided turn to the downside over the last two weeks as has the short term temperature outlook and the nuclear power outage situation... all now more biased to the bearish side than they were in July. The spot natural gas futures price peaked at about $3.28/mmbtu on July 31 and has been continuing to slide ever since. In the last eight trading sessions the spot natural gas contract has lost $0.507/mmbtu or 15.5% since hitting the high of the uptrend.

Currently the market looks like it is trying to settle into a technical trading range of around $2.70/mmbtu to about $3.17/mmbtu. If the $2.70/mmbtu level is breached the next stopping point could be down to the $2.50/mmbtu level. The Nat Gas market has had a good recovery run rising from around $1.90/mmbtu back during the second week of April to the $3.28/mmbtu high previously highlighted.

The majority of the support for the rally has come from the consistent underperformance of weekly injections throughout the entire injection season so far. In fact weekly injections have averaged around 67% of last year which has resulted in the overhang in inventory continuing to narrow throughout the season. However, even with an underperformance of around 33% so far this season there is still a considerably large amount of gas in inventory versus last year at the moment......Read the entire CME Group article.

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Natural Gas Steals The Headlines on EIA Injection Report

Today's story in Nat Gas is all about the weekly EIA injection report which came in below all of the market expectations today sending the market into an instant short covering rally that is still underway as of this writing. The inventory injection was below the market consensus as well as below last year and the five year average for the same week.

So far the weekly injections have underperformed for the entire injection season so far. This pattern will have to continue to avoid storage from hitting maximum capacity limitations before the end of the injection season (normally around the end of November to early December). Keep in mind in the short term the market will have limited upside as rising prices will eliminate the economic advantage of Nat Gas over coal for power generation.

This switching has contributed strongly to injections underperforming for the last three months. I still view this market as trading most of the time in the $2.25 to $2.50/mmbtu trading range.

Today's EIA report was bullish from the perspective that the injection was below the consensus level and bullish when compared to last year and the five year average injection level for the same week. The EIA injection was 7 BCF below the consensus (74 BCF) and below last year's injection and below the injection level for the five year average for the same week.

The net injection of 67 BCF was less than my model forecast (70 BCF) this week and at the very low end of the range of market projections. The inventory surplus narrowed modestly versus both last year and the more normal five year average also. The current inventory level is now 666 BCF above the five year average.

Video

CNBC's Sharon Epperson discusses todays spike in natural gas prices and the day's activity in the commodities markets and looks at where crude oil and precious metals are likely headed tomorrow.

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.