NatGas: The Wild Wild West...
Yesterday (Thursday), the EIA reported a reasonable 73 Bcf injection into natural gas storage. Analysts were looking for an 80 Bcf injection and the previous report saw a 103 Bcf injection, yet prices sold off in the minutes after the report. Why?
We believe traders did not find the report to be earth-shaking: prices were soon off their lows and settled the day higher, possibly on reports of a tropical storm brewing close to the Gulf of Mexico (GoM) (although Matt Rogers of Commodity Weather Group described risk to the Gulf as “Still low” as of Thursday morning).
The number itself is well within seasonal norms, our historic trend was a 79 ± 5 Bcf injection and the 2004-08 average is 72 Bcf. Bloomberg’s Whisper Number, which often proves to be more accurate than the analyst data due to the sheer number of submissions, was remarkably close at 74 Bcf.
On the regional breakdown, we are not surprised that prices fell in the minutes after the report — the East and GoM producing regions saw injections above last year while the West Coast’s 1Bcf injection suggests that throttling (or a “Sustained Operation Condition,” as it is euphemistically known) remains in place.
It seems likely that production was increased to cope with cooling degree days well above last year. As shown in the Chart of the Day in today’s issue of The Schork Report, the year-on-year surplus was as high as 70% for the week of June 9th and even as late as 28th July we saw the surplus come to 54% more cooling degree days YoY.
For the past two weeks, however, cooling degree days have been below last year, with a 4% deficit two weeks ago and a 2% deficit as of this week. Although slight variations will occur due to 2010 having 53 calendar weeks instead of 52, it is clear that temperatures are no longer breaking records.
The knock on effect on electricity demand was clear — electricity output for the week of 28th July was 15.45% above 2009; as of last week this surplus has narrowed to just 3.12%. Regardless, as illustrated in today’s issue of The Schork Report, we have seen a material contraction in the front month spread, from a 25.8 cent discount on September 9th to a 0.13 cent discount as of today.
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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.