From the CME Group:
I must say today's Nat Gas injection report was a surprise to me and one that is slowly starting to change my view that Nat Gas may now have additional upside potential. I still think the price of Nat Gas is overvalued but what I am changing my opinion on is an overdue round for profit taking selling may not be as deep as I have been expecting nor is it likely to last as long as I was expecting. We are now about a month or so away to the end of the inventory injection season and with next week's injection almost certain to underperform versus both last year and the five year average the overhang in inventory is going to continue to narrow further. With this week's injection the overhang versus last year is down to 6.8%. Based on my model projections for the rest of the injection season total ending inventories may end the season at just 1.7% above last year or only about 70 BCF above.
With the latest projection by NOAA calling for about an 18 to 20% colder winter season than last year Nat Gas consumption is almost certain to be well above last year's winter consumption level. With inventories likely to be only slightly above last year the inventory overhang that plagued the market last year is not likely to be an issue and as such prices will be less susceptible to a sustained downtrend over the next 4 months or so. I am becoming a bit more biased to the bullish side and expect the market to be more in a buy the dip mode rather than a sell the rally mode. I do not expect that prices are going to surge higher unabated. However, I think we may now be entering a mild uptrend that could find both fundamental and technical support.
Also the inverted head and shoulders pattern that I detailed about a week or so ago is still very much in play and with the spot Nat Gas futures contract still trading above the upside breakout point of $3.43/mmbtu. This technical pattern projects prices well over the $4/mmbtu over the next three to four months. At the moment the fundamentals may be changing and the technicals are still projecting higher prices going forward.
In the tropics there are now two weather patterns appearing on the radar. As of this morning there is one weather area... about 350 miles east of the Windward Islands. This pattern has a 50% chance of strengthening into a tropical cyclone over the next forty eight hours. In addition there is now Tropical depression 16 about 275 miles east of the central Bahamas that is projected to head out into the Atlantic and out of harm's way to any land area over the next several days. However, it is still worth watching the progress over the next few days.
Thursday's EIA report was bullish from the perspective that the injection came in below the consensus and bullish from the view that it came in well below last year and the five year average for the same week. The 72 Bcf injection was below the expectations and the market consensus calling for an injection of around 79 BCF. The net injection of 72 BCF was well below my model forecast (85 BCF) this week and at the very low end of the range of market projections. The inventory surplus narrowed versus last year and the more normal five year average. The current inventory level has narrowed to 269 BCF above the five year average or 7.8% above.
This week's 72 BCF net injection is below last year's net injection of 108 BCF and below the injection level for the five year average of 84 BCF for the same week....MORE
