First Triple Digit Injection Since 2011 – Speculative Net Long Position Plummets

Highlights of the Natural Gas Summary and Outlook for June 7, 2013 follow. The full report is available at the link below.

Natural Gas Summary and Outlook

• Price Action: Prices continued to slide and fell another 15.6 cents (3.9%) to $3.828 on a 22.6 cent range.
• Price Outlook: The market did indeed establish a new low and with prices closing near the weekly low, a new weekly low is considered the most probably path. Since 2000, 78 weeks have seen two weeks in a row of new lows and of those, 51 made another new low to extend the streak to 3. Thus, with a new low just 1.5 cents lower than the closing price, that certainly seems the most likely outcome. The first triple injection since 2011 was the driving factor. While an injection that large is never bullish, the bearish implications are somewhat tempered by the moderate temperatures and Memorial Day Holiday effect. The increase in speculative net length came to a crashing halt with the combined net long position plummeting. Considering the price drop at the end of the week a further reduction in speculative net length is likely. CME open interest fell to 1.46 million contracts and total open interest across the complex dropped to 5.41 million contracts as of June 4. This level remains well below the record open interest of 6.36 million. While overall classical volatility remains subdued, substantial daily moves are still likely.
• Weekly Storage: US working gas storage rose 111 BCF for the week ending May 31. Current inventory levels of 2,252 BCF now fall 625 BCF (21.7%) below last year and 61 BCF (2.6%) behind the 5 year average.
• Storage Outlook: This was the first triple digit injection since October 2011 and emphasizes again this is not 2012. However, this injection was influenced by moderate temperatures and the Memorial Day Holiday. Extrapolating this injection to November is not considered prudent. Still, it is noteworthy and current forecasts suggest that the storage deficit is likely to be reduced every single week until September. Clearly, an extreme heat event or well placed TS could result in a single week or two not exceeding last year’s injection. June injections will obviously be more relevant to the expected summer time supply/demand balances.
• Supply Trends: Total supply rose 0.3 BCF/D to 68.4 BCF/D. US production rose again with imports flats. Mexican exports were also slightly higher. The US Baker Hughes rig count dropped 6 as oil activity fell and natural gas was unchanged. Canadian activity rose 7. Thus the total North American rig count increased by 1 to 1,917 which now trails last year by 297. The higher efficiency US horizontal rig count fell 1 and at 1,088 falls 89 behind last year.
• Demand Trends: Total demand fell 1.3 BCF/D to 54.9 BCF/D. Power and R&C demand slipped while industrial demand edged higher. Electricity demand rose 1,474 gigawatt-hrs to 76,387, which trails last year by 2,377 (3.0%) and the 5 year average by 657 (0.9%). Considering the Memorial Day Holiday, electricity demand was considered neutral on a temperature adjusted basis.
• Other Factors: The S&P 500 again slipped with focus looking forward to the Friday jobs report.