Schork Oil Outlook: Bears Can't Close The Deal

Energy prices were strong on Thursday ... as the entire complex recovered from Wednesday’s correction.

NO! That was the answer to yesterday’s question, “… the bears have the bulls on the ropes … can they now close the deal?” No, no they cannot.

Yesterday the EIA reported that working gas in underground storage increased by 124 Bcf or 5.6% to 2.337 Tcf for the week ended May 29th. Yesterday’s report encompassed the Memorial Day holiday.

This report, along with the report that covers the 04th of July holiday, is typically the largest injection of the season (see Chart of the Day in today’s issue of The Schork Report). In this vein, yesterday’s number certainly lived up to its billing. A 124 Bcf injection is large. The typical injection is 117 Bcf and the EIA reported a 105 Bcf injection for the corresponding week (30-May-08) from a year ago.

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On the regional breakdown, the GoM Producing Area reported a 34 Bcf (+3.8%) injection to 934 Bcf. The report was the twelfth straight injection of the season. In that time, storage has risen by 244 Bcf or 9.9% above the seasonal norm. What’s more, the year-on-year surplus increased to 284 Bcf (+43.7%).

In the East, where the bulk of the nation’s winter storage facilities are concentrated, inventories rose by a seasonal 71 Bcf or 7½%. It was the ninth injection of the season, the sum of which is 383 Bcf. The seasonal disposition in refills is still in deficit, minus 6% as of last Friday, but that shortfall has improved significantly since the start of the season. More importantly, the year-on-year surplus increased to 119 Bcf.

Finally, out in the West supplies increased by 19 Bcf. That is a seasonally strong injection. Consequently, the year-on-year surplus increased to 128 Bcf (51%... 51%!). Injections this season now sum 103 Bcf, which is around 10% above the norm.

Bottom line, the nearby fundamental picture is as ugly as ever, i.e. the U.S. is drowning in gas. Underground caverns, mines and aquifers are brimming. The 5-year average surplus (interpolated) increased to 423 Bcf (+22.1%). That is the equivalent of two weeks of record (August 2007) gas-fired a/c load from the nation’s grid.

It was a bearish report … to say the least. The contract for spot delivery on the NYMEX plunged around 5 percent in the minute following the report’s release. The weekly report was compounded by the recent release of the EIA’s Natural Gas Monthly March.

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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.