As noted in Friday’s issue of The Schork Report, spot gas on the NYMEX had jumped by 839 ticks or 18.8% over the five sessions ended last Thursday. To put that rise into perspective, in the five sessions following Hurricane Katrina’s landfall, the October 2005 contract jumped by 1,885 ticks, but the comparable percentage change (based on a logarithmic or ratio scale) was only 17.6%.
Three weeks later, following the landfall of Hurricane Rita, the five-session ratio return was 10.1%. In this vein, the five-day return as of last Thursday, based on a ratio scale, was 17.2%.
In other words, last week’s surge in heating demand is apparently comparable to the long-lasting devastation wrought by Hurricane’s Katrina and Rita … despite the fact that underground stores of gas are currently 586 Bcf (+18%) above the five-year average. This surplus translates into 19 days of record gas-furnace residential demand (January 2001) and 21 days of average demand for the last ten Januarys.
With industrial and commercial gas demand lagging, the notion that the current spell of winter is responsible for last week’s Katrina/Rita-esque spike on the NYMEX is, we think, utterly preposterous. Be that as it may, the technical tide appears to have turned. We might see some further corrective downside momentum at the onset of this week, but the early word we are hearing is that Thursday’s EIA report will challenge the record delivery from December 2002, 175 Bcf.
A report of that magnitude, along with potential increased vol stemming from the UNG roll (Tuesday through Friday), could stem downside momentum – accordingly, we are advising clients of The Schork Report to exercising caution is selling against this rally in natural gas.
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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.