ENERGY PRICES WERE STRONG ON THURSDAY…inexplicably, we might add. In a move reminiscent of the SemFuel WTI squeeze last June, NYMEX Henry Hub gas futures rocketed nearly 70 cents ($6,960 per contract) or 19 percent in the three minutes following the EIA report. The rest of the complex just tagged along for the ride.
Yesterday the EIA reported that working natural gas in underground storage declined by 30 Bcf or 1.8 percent to 1.651 Tcf for the week ended March 13th. The typical draw is around 44 Bcf. Last year the EIA reported an 85 Bcf delivery for the corresponding week (14-Mar-08). As such, the report came in well below the seasonal norm and from a year ago. Consequently, the year-on-year surplus ballooned from 283 Bcf (+20%) to 338 Bcf (+26%).
According to one industry survey, the whisper number ahead of yesterday’s report averaged 26 Bcf. Thus, yesterday’s report was hardly a surprise. Although, the market clearly lacked a consensus; e.g. the survey on Bloomberg ranged in between 5 and 50 Bcf, which is exceedingly wide, even by cross seasonal standards.
Be that as it may, yesterday’s report was within 16 percent or 4 Bcf of the average and median forecasts of 20 industry analysts polled by Bloomberg. The report was 30 percent or 14 Bcf below the seasonal norm and 65 percent or 55 Bcf below the delivery from a year ago. Yet for some reason the spot NYMEX contract rocketed 20 percent in the moments following the EIA release.
That makes NO BLOODY SENSE. We appreciate markets are not supposed to make sense. But yesterday’s reaction is beyond the mathematical realm of reasonableness. We bet someone made a fat-finger mistake. If it occurred at a public company we will read about next earnings season.
NATURAL GAS: As we look ahead to next Thursday’s report, the typical delivery is around 38 Bcf. Last year the EIA reported a 37 Bcf delivery for the corresponding week (21-Mar-08). Nationwide implied weather demand for this week is mixed. For instance, degree days in Chicago are forecast to come in by one third below the prior week and one fourth below normal. On the other hand, degree days in New York City are expected to come in slightly below normal, but one eighth above the week before.
As far as yesterday’s NYMEX goes… what was that all about? If anyone tells you they have a rational explanation for what happened in the wake of the EIA report, you should immediately dismiss them. They are obviously lying to you or they are psychotic. After all, the average true-range of the April contract for the last month was 20.3 cents. The market’s true-range yesterday was 74.9 cents. In the wake of yesterday’s EIA report only a trader in Stage 3 dementia would attempt to justify that.
As disgusted as we are with yesterday’s price path however, if we close higher today we will be forced off of our bias. In this regard, another run in today’s session through the March 04th pivot-high at 4.308 clears a path towards The Schork Report’s4.353 inflection point. We will look for further strength above here towards our 4.422 intraday.
On the other hand, offers through yesterday’s 4.050 pivot-low cautions for further corrective weakness towards our 3.995 inflection point.
Below here we will look for offers towards our 3.926 intraday.
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Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.