Stephen Schork
Editor of
"The Schork Report"

Energy prices were mixed on Thursday - the liquids sank and gas soared. Spot crude oil futures in New York dipped below the $70 threshold for the first time in two months, but could not close there. At the same time, spot natural gas futures surged to a new season-to-date high after the EIA released a somewhat disturbing report.

Yesterday the EIA reported that working gas in underground storage decreased by 64 Bcf or 1.7% to 3.773 Tcf for the week ended December 04^th. It was the first net delivery of the heating season. The report was also well beyond the pre-report consensus, which according to various industry surveys were around 50 Bcf. As a result, within 2 minutes following the reports release spot Henry Hub gas futures on the NYMEX surged more than 5%.

What a difference a few sessions make on the NYMEX casino. Last week, after the EIA reported a rare late season injection, Henry Hub gas for delivery into January sank to a life-of-contract low, 4.432. Yesterday, the January contract surged to a new season-to-date high print, 5.347. Thus, in one week gas has rallied (low to high) 20% or $9,150 per contract at its widest range. 

The 2009 refill season is over, finally. According to the EIA weekly estimates (EIA-912), 2.19 Bcf of gas was injected from late March up through the end of November. That is 123 Bcf or 6% above the five-year average. As a result, the market entered this season with the highest level of underground inventory on record; within 1.35% of estimated peak design capacity.

This heating season is getting off to a crazy start.  October was one of the coldest on record, only to be followed by an extremely warm November. As such, approximately 203 Bcf was injected in October compared with the five-year average injection of 250 Bcf; a 19% shortfall. On the other hand, we saw a rare net injection for November, an estimated 9 Bcf per the EIA’s latest outlook as opposed to the five-year average delivery of around 57 Bcf.

In a seasonal context last week’s 64 Bcf delivery was small, i.e. half the five-year average. That said, the report was well above the market’s forecast. That is troublesome. Unlike the weekly DOE/API oil report, which the market consensus never gets right, the weekly EIA gas report usually falls within a reasonable tolerance of the market’s guess.

It is therefore a concern when the consensus flubs this report; especially when it misses the mark by more than a third. An occurrence such as this typically results from either a mistake by the EIA or the beginning of a fundamental shift that the storage models have yet to indentify. If it is the former, then we will undoubtedly see a true-up in next week’s report.

In this vein, given this week’s arctic blast, we are virtually guaranteed a triple-digit delivery in next Thursday’s report. The typical delivery ranges in between 106 Bcf and 134 Bcf, but the early whisper number is already calling for a delivery in excess of 150 Bcf. The largest injection ever posted for next week’s report occurred in 1995 with a 175 Bcf delivery.

Thus, if yesterday’s report was some sort of statistical balancing with last week’s 2 Bcf reported injection, then based on our analysis here at The Schork Report , we would expect to see a delivery next Thursday of 134 Bcf or below. If, on the other hand, the fundamentals have begun the long anticipated shift – supply destruction, coupled with weather-related demand –then we suspect we will see a delivery in excess of 150 Bcf.

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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.