Apropos the discussion in Thursday’s issue of The Schork Report, the future is now for $5 gas.
The Nymex Henry Hub complex edged to within 1.3% of that benchmark to close last week’s trading. Thus, if we are going to see +$5 then it is going to happen sooner rather than later.
To wit, last Thursday the EIA reported a psychologically bullish sub 30 Bcf injection. Given last week’s heat, odds are short we are going to see yet another very low build in stocks this Thursday.
More importantly, our friends at Commodity Weather Group expect temps in the heavy population density markets in the east to remain above normal through the first half of this month. Furthermore, the second half of this month places us on the doorstep of the peak hurricane season. As such, the market is perhaps concerned with regard to the availability of gas.
Over the last two weeks an 8 cent or 1.8% discount on the contract for September delivery relative to the October has narrowed to a penny or 0.3% as of Friday. Thus, one of two events is occurring at the moment. Either utilities are scurrying to lock up supply requirements or traders are buying up the spot before the start of the Index rolls (e.g. S&P GSCI, UNG, etc).
In any case, producers and processors do not mind selling into this market. As of last Tuesday the net amount of futures contracts on the Nymex sold compared with purchased rose by 11% to 17,047 net shorts. The last time spot Nymex gas traded over $5 (one month ago), net shorts held by commercial gas interest was over 21,000 contracts. However, three weeks later the Commercials were short by less than 13,000 contracts… and gas was back below 4.300.
Per last week’s Fed Beige Book, commercial and industrial interests — 2 out of the 3 cost drivers for natural gas (weather being the other) — continued to struggle in all twelve Federal Reserve Districts. Therefore, we should get a close above $5 today. But given how anemic demand is from two-thirds of the market, how long can the bulls maintain a bid?
Our guess, not very long… save for a hurricane.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.