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James Hyerczyk
Natural Gas
Natural Gas

Natural gas futures are trading lower early Friday after surging nearly 3 percent higher the previous session despite a bigger-than-expected storage build. Traders are attributing the solid gains to aggressive counter-trend speculative buying and massive short-covering. The move essentially caught weak short-sellers by surprise, encouraging them to pay anything for production.

At 0947 GMT, November Natural Gas is trading $2.944, down $0.020 or -0.67%.

According to the U.S. Energy Information Administration, U.S. Natural Gas in storage increased by 86 Bcf to 2.722 for the week-ended September 14. The build was slightly more than the consensus estimate for an 83 Bcf build.

The injection was also below the 87 Bcf build reported during the corresponding week in 2017 but more than the five-year average addition of 76 Bcf, according to EIA data. Additionally, it is only the second time in the last month the injection was more than average.

As a result, stocks were 672 Bcf, or 20%, less than the year-ago level of 3.394 Tcf and 586 Bcf, or 18%, less than the five-year average of 3.308 Tcf.

The injection was also more than the 69-Bcf build reported the week-ending September 7 as population-weighted temperatures across the Lower 48 dropped by 6 degrees and significantly dampened demand for gas-fired power generations, particularly across the Midwest and Northeast.

At 2.722 Tcf, total working gas is below the five-year historical range and sits 196 Bcf lower than the five-year minimum.

Forecast

The market opens today’s session on the strong side of a retracement zone at $2.911 to $2.880. This area is now support. If buyers can continue to build on this week’s upside momentum then we could see a drive into the next main top at $3.013. This is another potential trigger point for an acceleration into the next pair of tops at $3.032 and $3.064.

Looking ahead, according to S&P Global Platts Analytics, “Over the past five years, storage levels have peaked on the week-ending November 9 at 3.8 Tcf. That would allow for eight more injections before the flip to net withdrawals begin. An early forecast for at least the next three weeks show no significant reduction in the deficit.”

“Storage is now expected to peak at 3.26 Tcf before the switch to withdrawals in early November,” according to the latest forecast by Platts Analytics. “If so, it would be the lowest level to start the heating season since 2003, when stocks peaked at 3.18 Tcf. However, high gas production has kept prices from rising despite the large storage deficit.”

Platts Analytics expects a build of 52 Bcf for the week in progress, which would expand the storage deficit to the five-year average by 29.

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