Strong Cash Prices Offset Bearish Natural Gas Report; Big Inventory Drop Continues to Underpin Crude

There are a record number of shorts in the natural gas market and they have to either rollover into the October futures contract, hoping for a bearish September, or they have to start covering while preparing for the Fall Shoulder Season. It looks like some have decided to lighten up on the short side.
James Hyerczyk
Energy, Natural Gas, Crude Oil

Energy continued to be in focus on Thursday with stocks posting solid gains on top of yesterday’s robust performance. U.S. West Texas Intermediate (API) and international benchmark Brent crude oil remained underpinned by Wednesday’s bullish Energy Information Administration (EIA) weekly inventories report. Natural gas futures rallied on the back of a very strong cash market despite a bearish EIA weekly storage report.

Energy Sector Stocks

Energy sector stocks rallied on Thursday, helped by a broad-based rally, yesterday’s bullish EIA inventories report and an easing of tensions between the United States and China that reduced concerns over future demand growth.

At 18:03 GMT, the S&P 500 Energy Sector was trading $421.03, up $5.21 or +1.25%.

WTI, Brent Strengthen

U.S. WTI and Brent crude oil continued to strengthen and are now in a position to finish higher for the week.

Underpinning crude oil early in the session was follow-through buying related to Wednesday’s bullish EIA inventories report and Tuesday’s American Petroleum Institute’s (API) weekly inventory summary.

The EIA said on Wednesday that American crude oil stocks dropped the week-ending August 23 by 10 million barrels, while gasoline and distillate stocks each fell by 2.1 million barrels. On Tuesday, industry group API said U.S. crude stocks had fallen by 11.1 million barrels last week.

Crude oil prices jumped shortly before the regular session opening after China said it wished to resolve its protracted trade dispute with the world’s largest economy with a “calm” attitude.

Later in the session, President Donald Trump said the U.S. and China are set to have trade talks on Thursday “at a different level.”

The news helped ease concerns over an escalating trade war between the economic powerhouses, while reducing worries over a global economic slowdown that could lead to lower demand growth.

At 18:16 GMT, October WTI crude oil is at $56.32, up $0.54 or +0.97% and December Brent crude oil is trading $59.35, up $0.12 or +0.20%.

Natural Gas Traders Shrug Off Bearish EIA Storage Report

Natural gas futures are trading higher on Thursday as strong cash market gains and aggressive short-covering after the futures contract rollover on Wednesday helped spike prices to their highest level since August 1. The news offset a bearish government weekly storage report.

Although the tropical storm in the Atlantic has been upgraded to Hurricane Dorian, it is not having a direct on prices at this time. The hurricane is expected to slam into Florida over the weekend, but this could actually be bearish for prices because of lower power plant demand. Should it travel across Florida and regain strength over the Gulf of Mexico then that would be another story.

EIA Hurricane Path Map with Natural Gas Processing Plants

Different Opinions on Hurricane Impact

The Wall Street Journal is saying the market is concerned about production disruptions, but demand tends to be the issue when hurricanes hit Florida.

According to the experts at NatGasWeather, “Two tropical systems, but the only one of primary concern is Dorian tracking through the Caribbean and towards Florida. The latest track was a touch further, which means less opportunity to impact much of the Gulf of Mexico. We expect bearish impacts through cooling and showers for lost demand but could also be slightly lighter production and LNG export issues. The second storm, Erin, is expected to remain off the US Coast.”

“The latest guidance was a little stronger and increases the cyclone to hurricane strength prior to impacting Florida and the Southeast U.S. Atlantic Coast Sunday-Monday,” NatGasWeather said. “But again, impacts are likely to be more bearish than bullish” due to the projected loss of demand from cloud coverage weighing more heavily than any loss of production.”

The forecasters still aren’t sure if it will continue up the East Coast of Florida or move across the state.

“The hurricane looks likely to make landfall in Florida and move north rather than into the Gulf from what “I’ve seen, so [there’s] no reason to expect shut-in production form this,” said Marshall Steeves, energy market analyst at IHS Markit.

“Should the forecasted path take a turn toward the Gulf, crews [from oil and natural-gas platforms] will be evacuated, and production will decrease for a short period of time,”according to a report issued Thursday from energy data analytics company, Enverus Drillinginfo.

“This path change must happen soon for production to be impacted as Dorian is expected to hit the eastern coast of Florida this weekend,” the report said. “Additionally, should the hurricane path stay true, production will stay near current levels and demand will decrease, pressuring prices lower,”

At 18:34 GMT, October natural gas futures are trading $2.296, up $0.074 or +3.33%.

Natural Gas EIA Report

On Thursday, the EIA reported a 60 Bcf injection into storage inventories for the week-ending August 23. With estimates coming in at 45 Bcf to 61 Bcf, hitting the high end of the range is concerned bearish.

“The market so far is hanging on well through, thanks to very strong cash in today’s trading session, and some tightening more likely for next week’s report given the production dip and recorded liquefied natural gas (LNG),” Bespoke chief meteorologist Brian Lovern said.

Technical factors are also playing a role in the rally with buy stops hit over $2.226, $2.273 and $2.278.

There are a record number of shorts in the market and they have to either rollover into the October futures contract, hoping for a bearish September, or they have to start covering while preparing for the Fall Shoulder Season. It looks like some have decided to lighten up on the short side.

Don't miss a thing!

Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.