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James Hyerczyk
Natural Gas
Natural Gas

The strong upside momentum driven by aggressive speculative buying and short-covering by bearish traders caught on the wrong side of the market spiked natural gas prices higher for a third day on Wednesday. Early in the session on Thursday, the market is being underpinned again but yesterday’s high remains intact. Volume and volatility are light ahead of today’s U.S. Energy Information weekly storage report.

At 0730 GMT, November Natural Gas futures are trading $3.245, up $0.015 or +0.46%.

Going into the EIA report traders are keying in on three major issues.

Firstly, uncertainty over the in-service of a few major pipelines is making industry professional nervous about a supply shortage heading into the winter season.

Secondly, traders are worried that another low storage build will come in below the five-year average

Thirdly, late season cooling demand in the southern U.S. is driving up spot gas prices.

Forecast

Today’s EIA report is expected to show an injection of 95 Bcf. This is 51 Bcf larger than a year ago and 11 Bcf more than the 5-year average. Also look for the EIA to report 2,863 Bcf of working gas in storage for the week-ending September 28.

Look for volatility after the release of the EIA report because I have seen injection estimates that have been all over the map. The low end of the estimate shows a 48 Bcf build. Others are saying 68 Bcf is the number. Reuters analysts expect natural gas inventories to rise by 94 Bcf. Because of the wide range of guesses, we could see a hesitation in the trade shortly after the release of the data. After that we could see a wild two-sided trade.

With the market in the hands of speculators, it could turn at any time because speculators do book profits from time to time. Hedgers who have licked their wounds may try to stop this rally with some timed hedging.

Once again this move caught a lot of professionals off-guard because it came weeks early. There is some time for a pullback, however. Eventually the pipeline issues will be fixed, the power plants will resume normal activity, production will rise and traders will start paying attention to the weather pattern which suggests light to moderate demand.

I stand by my forecast for a correction before the heating season officially starts in November. But I’m going to need help from the EIA report today. Due to the wide range of estimates, anything can happen. Here’s hoping for a 100+ injection.

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