Prices rise despite moderating temperatures and the largest storage injection of 2012

Highlights of the Natural Gas Summary and Outlook for October 1, 2012 follow. The full report is available at the link below.

Natural Gas Summary and Outlook

• Price Action: Prices rose despite moderating temperatures and the largest storage injection of 2012. Prices basis the now prompt November contract rose 24.9 cents (8.1%) to $3.320 on a 33.0 cent range. Price action was considered mostly technical as the weekly storage injection eclipsed the 5 year average for only the second time since April 2012.
• Price Outlook: There was a continued dramatic reduction in the yearly storage surplus and forecasts of below normal temperatures were considered the driving market factors. Despite still moderate temperatures, very large injections in 2011 will likely result in a continued fall in the yearly storage surplus in coming weeks. While considered mostly technical in nature, prices could easily continue to advance. CFTC data indicated a huge surge in the speculative net long position and a dramatic reversal in the trend since late July. Although total open interest plummeted to just 4.75 million contracts as of September 25, this was largely due to the October expiration and new buying may lift prices further.
• Weekly Storage: US working gas storage rose 80 BCF for the week ending September 21. Current inventory levels of 3,576 BCF now rise 264 BCF (8.0%) above last year while surpassing the 5 year average by 280 BCF (8.5%).
• Storage Outlook: The 80 BCF injection is considered very relevant considering seasonal trends and the overall temperature profile. Injections must be considered within the context of the overall national temperature and seasonal profile. In this light, the 80 BCF was considered bearish for the first time since December 2011. This has significant ramifications considering the price increase since this activity and possible supply/demand effects of a now even higher price level.
• Supply Trends: Total supply rose 1.0 BCF/D to 68.3 BCF/D. US production and Canadian imports rose while Mexican exports dropped. LNG imports were unchanged. Monthly data from the EIA indicated still robust production in July and US production remains a bearish overall influence. The US Baker Hughes rig count witnessed a return to the 2012 trend of higher oil and lower natural gas activity. Canadian activity also fell and thus the total North American rig count dropped 15 and at 2,207 now trails last year by 293. The higher efficiency US horizontal rig count fell 7 and at 1,142 surpasses last year by 7.
• Demand Trends: Total demand rose 0.2 BCF/D to 56.6 BCF/D. Lower power demand was more than offset by higher R&C and industrial consumption. Electricity demand fell 3,915 gigawatt-hrs to 72,966 which trails last year by 2,277 (3.0%) and the 5 year average by 4,668 (6.0%). The now higher price level will be watched closely for indications of coal regaining market share.
• Other Factors: The S&P 500 index continued to slide as US and global economic indicators remain lackluster. While monetary policy may continue to provide commodity price support, physical demand remains tepid.