- Inventory injections will start declining over the coming weeks
- The market was expecting an injection of 86 bcf
- The price action after the EIA data continues to be bullish
After the most recent release of inventory data from the Energy Information Administration, there are only two weeks left in the 2019 injection season in the natural gas futures market. The market consensus going into the latest EIA report on natural gas in storage across the United States was for an injection of 86 billion cubic feet into inventories.
The price action in the natural gas futures market had been bullish after the November futures contract rolled to December. The price of December futures hit its most recent low at $2.388 per MMBtu on October 11. Since then, the price rose as the start of the 2019/2020 withdrawal season is only a couple of weeks away. The United States Natural Gas Fund (UNG) is a liquid non-leveraged ETF product that moves higher and lower with the price of the energy commodity.
Inventory injections will start declining over the coming weeks
In 2108, at the end of the injection season, natural gas stockpiles rose to a high at 3.247 billion cubic feet.
As the chart shows, as of the week ending on October 25, stocks were already well above that level at 3.695 bcf. The data showed an increase of 89 bcf as of the end of last week, pushing inventories to 17.8% over last year’s level and 1.4% above the five-year average for this time of the year.
The market was expecting an injection of 86 bcf
The data for the week ending on October 25 came in slightly above the market’s consensus estimate of an increase of 86 bcf. The price of December futures had been moving to the upside before the EIA data.
The daily chart illustrates that the price of nearby NYMEX futures rose from under $2.40 to over $2.70 per MMBtu. The most recent high came on Thursday, October 31, before the release of the EIA data at $2.738. The slightly higher than expected injection caused some selling that took the price of NYMEX futures to a low at $2.606 per MMBtu on Thursday. The price of the energy commodity settled just above the high for the day at $2.633.
The price action after the EIA data continues to be bullish
Both price momentum and relative strength indicators rose above neutral readings given the recent rally. Daily historical volatility moved sharply higher from around the 14% level at the start of October to almost 39% on Thursday. The higher level of daily historical volatility reflects the wider price variance over the recent trading sessions.
Meanwhile, the total number of open long and short positions in the natural gas futures market declined to under 1.2 million contracts as the price appreciated. The open interest metric had reached a high at over 1.29 million contracts during October. Falling open interest and the rising price is not a technical validation of a bullish trend in a futures market. However, the uncertainty of the average temperatures for the coming winter months is a reason that the price action could continue to experience periods of upward momentum.
The initial consensus for next week’s injection is at around the 80 bcf level, which is not enough for the total inventories to rise to four tcf for higher by the start of the withdrawal season in mid-November.
The United States Natural Gas Fund L.P. (UNG) was trading at $21.43 per share on Friday afternoon, up $0.62 (+2.98%). Year-to-date, UNG has declined -8.10%, versus a 15.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Andrew Hecht
Andrew Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is a top ranked author on Seeking Alpha in various categories. Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup. Over the past decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities. Aside from contributing to a variety of sites, Andy is the Editor-in-Chief at Option Hotline.