The market is now in a transition from whence builds segue into deliveries over the next EIA report or so. By all accounts, the cold start to this winter’s marketing year has subsided; hence last week’s seasonal injection. More importantly, for a second straight week the latest weather outlook (through November 19th) does not looking promising for the bulls.
Despite being at virtual capacity, gas is still getting into the ground.
Storage in the West and the GoM both increased by 1 Bcf as operators apparently had to scramble to shoehorn molecules into the ground.
Consequently, the surplus in the West to the EIA’s estimate of peak working capacity increased 5 Bcf (+1%) above what the EIA now describes as its conservative measure of demonstrated peak capacity.
Bottom line, the inn is full. The 2009 refill season is officially over, but the EIA is already warning that injections may continue into this month. As such, the NYMEX is trading accordingly. Over the last two sessions the March 2010 contract sank to a discount to the April 2010 contract for the first time since mid September, i.e. since the start of the pre-winter rally. Now that that rally has appeared to have run its course, the last contract in the 2010 winter is once again losing ground to the first contract of next year’s refill season.
That’s rather ominous, i.e. we are on the eve of seasonal demand, yet traders on the NYMEX are discounting this winter’s supply.
As analyzed in , the bulls better hope we see a very cold December and January, otherwise, come February storage operators will have to resort to the same tactics that any retailer relies on, they will have to put gas on sale to clear the shelves to make room for next season’s inventory
Stephen Schork is the Editor of, and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.