24 September 2009 19:18 [Source: ICIS news]
HOUSTON (ICIS news)--US natural gas futures continued to maintain strength despite a US Energy Information Administration (EIA) report on Thursday showing storage built by 67bn cubic feet (bcf) last week, bringing total inventories within 9% of the projected domestic storage limit.
Inventory levels totalled 3,525 bcf in the week ended 11 September, lifting stocks ever closer to the EIA's projected pinnacle for US natural gas storage at 3,889 bcf.
But the futures trading market has moved on from fears of exceeding natural gas capacity and expects a rebound when the winter demand season begins, according to an industry analyst.
"For all practical purposes, US Gulf storage is full," said Teri Viswanath, director of fundamental energy research for Credit Suisse Securities in Houston.
Running in the face of pricing fundamentals, futures have increased even while weekly injections pile up record-setting storage levels.
"Coming into the month, we hit lows of $2.50s [MMBtu]. Now we're $1.30 higher. If everything is still intact, why is the market not putting pressure on the front of the curve?", Viswanath asked. "All of a sudden we are talking winter. The market is reading ahead and jumped ahead."
Shortly after 11 am New York time (16:00 GMT), October prices traded at $3.895/MMBtu, an increase of 3.5 cents from Wednesday's close. November contracts were up 5.8 cents to $4.812/MMBtu.
Last week's injection of 67 bcf fell in the middle range of analysts' projections of 61-78 bcf and had October futures bouncing back and forth between negative and positive territory on the NYMEX.
US chemical producers have recently turned more to natural gas liquids (NGLs) as the feedstock of choice, since natural gas prices continue to be a bargain over crude-based raw materials.
Viswanath said upward prices in natural gas starting in September are the market's answer to the question of whether the US industry's storage capabilities can handle another month of injections before November, when winter demand picks up and weekly storage levels start to draw inventory.
"EIA published their real number on where they think peak storage is, but that's our best guess," she said about the 3,889 bcf estimation.
The market's sights are now set on 2010, she said, where NYMEX futures prices are in the high-$5s/MMBtu for the winter months.
"Yes, it's still bad," Viswanath said. "But the finish line is in sight and producers know they can turn the corner and they'll be out of the woods."
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