November 6, 2008
Bullish Natgas Storage Build Fails to Spark Futures, Reports NGI
Choosing to respond to renewed strength in the U.S. dollar instead of a bullish natural gas storage injection report of only 12 Bcf, December natural gas futures sank back below the $7 mark in Thursday morning trade.
Heading into the final report of the traditional storage injection season, the gas industry had been expecting the Energy Information Administration (EIA) to reveal a build ranging from 12 to 50 Bcf. The actual 12 Bcf injection was much smaller than last year's 45 Bcf build for the week and the five-year average injection of 31 Bcf.Just prior to the 10:35 a.m. EST report, December natural gas was trading at a low of $6.877. Immediately following the report, the prompt-month contract rebounded to trade at $7.050 before sinking lower once again. As of 11:30 a.m. EST, the contract was trading at $6.873, down 37.6 cents from Wednesday's close.
"The storage injection was smaller than expected, but that could reflect scaled-back production due to lower commodity prices," said Tom Saal, a broker with Hencorp Becstone Futures LC. "It looks like a lot of the commodities are coming off because of the strength in the U.S. dollar and the weakness in foreign currencies. Natural gas futures appear to be falling in an overall bearish day for commodities in general."
Saal, who will be hosting his popular "Where's the Market Going and What Can You Do About It?" workshop Dec. 8-9 in Miami, said that while the U.S. dollar's status is key, it is not the only thing to watch. "There are a number of tools and strategies to help clients navigate the volatile energy futures market and a number of them will be explained in Miami," he said. "The dollar notwithstanding, Mother Nature still rules the natural gas market this time of year. Strategy-wise, I would be looking to buy call options for my winter months. One option might be to buy a January $8.500 call option to protect yourself in case this very cold weather shows up. You could buy one for probably around 25 cents. If you think that is kind of expensive, you could also sell a January $5.750 put at 12.5 cents to help finance the purchase of the call."
Ahead of the storage report a Reuters survey of 24 industry players produced an average build expectation of 25 Bcf, but Golden, CO-based Bentek Energy said its flow model indicated an injection of 13 Bcf. As of Oct. 31, working gas in storage stood at 3,405 Bcf, according to EIA estimates. Stocks are 130 Bcf less than last year at this time and 78 Bcf above the five-year average of 3,327 Bcf. The East and West regions injected 6 Bcf apiece while the Producing region remained stationary for the week.
Joining Saal in Miami to host the natural gas futures trading and storage hedging workshop are Hencorp colleague Ed Kennedy and Al Bean, a partner in ACT Energy Management. Slots are filling fast, register by the early-bird deadline of Friday and save $300. Visit http://workshops.gasmart.com for more info.
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