US natural gas stockpiles edge closer to capacity

19 November 2009 18:06  [Source: ICIS news]

HOUSTON (ICIS news)--US underground natural gas storage was within 1.4% of estimated domestic capacity, showing a build of 20bn cubic feet (bcf) in the week of 13 November, according a US government report released on Thursday.

Last week's injection put total US stockpiles at 3,833 bcf, 56 bcf away from the 3,889 bcf threshold predicted by the US Energy Information Administration (EIA) as the maximum level for US storage.

Not only did the delivery build bring inventories to another week of record-high levels, the weekly injection was above traditional upticks at this time of year.

"The five-year average is a 1 bcf delivery with a seasonal error of in between a 7 bcf delivery and a 5 bcf injection," energy analyst Stephen Schork wrote in his newsletter The Schork Report. "In this light, the market consensus of an injection of around 20 bcf is large indeed."

Cameron Horwitz, an analyst at SunTrust Robinson Humphrey in Houston, predicted that injections would continue in the coming weeks but total storage levels will not bump into the EIA's predicted ceiling.

"I think it's two more to go. Maybe you'll inject 10 (bcf) next week and 10 the next week. It's incredibly mild weather now," he said. "From there, you'll likely see draws."

Futures traders rejected the historically-high injection and storage levels and put the December natural gas contract into positive territory shortly after the EIA's report.

On the NYMEX, front-month futures were up 1.3 cents at $4.268/MMBtu gaining back only a fraction of the losses from Wednesday when the December benchmark lost 27.6 cents, the lowest settlement since September.

"You took a huge hit yesterday, so you'd expect some bounce or rebound coupled with weather forecasts that show some heating demand farther out. That's what's driving prices today," said Horwitz.

Natural gas prices are important indicators for chemical commodity values due to the fuel's wide use as a feedstock and power supply.

January futures were down by 0.2 cents, trading at $4.657/MMBtu with a contango showing for the rest of the year's futures contracts.

"The pressure on the contango is coming from the view that the market will not be as tight in 2010 or the potential not to be," said Jeff Fetterly, an energy analyst with CIBC World Markets in Calgary. "Supply has been more resilient than anyone thought."

But market consensus was that seasonal temperatures would ultimately steer natural gas prices in the next few months.

"The biggest question in the next couple of months becomes weather," Fetterly said. "How does the winter start and how strong is the winter going to be? That's the biggest data point."

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By: Ryan Hickman
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