Bears are far, far from out of the woods.
Something squirrelly was going on in the Henry Hub pit yesterday morning. It almost smelled like the Dukes were up to something.
Three minutes prior to the release of the EIA report, spot Henry Hub gas ranged between 5.711 and 5.704 with a 5.709 closing tick. In the next minute bar at 10:28 am, the contract peaked at 5.714, but troughed at 5.537 and closed at 5.645.
A whipsaw such as that is to be expected… that is, in the first minute following the release of the EIA report at 10:30am. It is not expected, nor is it accepted as reasonable, two minutes prior to the release of the report… unless you think a 3 percent plunge inside of 60 seconds, sans headline, is somehow fundamentally justified.
For instance, after the EIA released a revised, much-hyped, report yesterday, the Nymex ranged from 5.483 to 5.555 over the next three hours and ticked marginally higher in the final hour of pit trading.
Therefore, either a very stupid bear got extremely lucky yesterday at 10:28am or, as we at have been jesting, Randolph and Mortimer have moved on from trading frozen concentrated orange juice to trading natural gas.
Either way, vol is surging, so if the Dukes want to partake, who could blame them? Gas is being delivered out of underground storage this season at an unsustainable pace. The only problem is, that pace is being sustained.
Early word has it that next Thursday’s report could be as high as 260 Bcf. If that is the case, then a year-on-year surplus which was at 482 Bcf (14.6 percent) at the start of this belated heating season, December 4, is now down to only 32 Bcf (1.3 percent). Current deliveries are averaging a blistering 23.5 Bcf/d. That is 75 percent above last year’s pace and nearly double (97 percent) the 11.9 Bcf/d average pace from 2004 to 2008.
Nowhere has the decline been greater this season than in the GoM Producing area. Last week we saw the first ever recorded triple digit delivery, 100 Bcf. Deliveries are averaging a blistering 7.5 Bcf/d. That is more than 4× last year’s 1.8 Bcf/d average at this point and twice the average from 2004 to 2008.
We are now at the crux of the season or as Zappa would say, the crux of the biscuit, but instead of apostrophes, we are talking about peak delivery season. Yesterday’s report, along with the next four, out through the week ended February 5, tend to produce the largest injections of the season.
Yesterday’s report was almost twice (87 percent) the long-term average delivery and next Thursday’s report will be as well. The report after that, week ended January 22, is usually the largest of the season (one month after the winter solstice), 165 Bcf average, with a tight error, 17 Bcf. However, in light of the current forecasts, that report will be the first delivery this season to come in below the long-term mean.
Regardless, the bears are far, far from out of the woods. Deliveries tend to trend lower beginning in mid February, however, after the current warm-up abates in the East, temps are forecast to drop in February. Yet, gas bulls cannot sustain $6 MMBtu on the NYMEX.
As the chart in today’s issue of illustrate, year-on-year surplus which averaged 481 Bcf from last winter until the start of this winter evaporated in the last three reports and yet, the bulls still cannot get anything going above $6 an MMBtu. On the other hand, demand for crude oil is putrid, but Wall Street has a large swath of the market convinced that $14.24 an MMBtu ($80/bbl) crude oil is justified. (See Crude Oil Prices Now)
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.