Natural Gas Intelligence
Cash Gains, But Futures Rocket Higher Following EIA Report

Friday, October 19, 2012

The overall cash market added two cents on average Thursday as gains at eastern points and the Gulf Coast were able to offset softness in the Northeast and southern California. The Energy Information Administration (EIA) reported a build of 51 Bcf, which was higher than market expectations, but prices slipped only for a moment. At the close November futures had gained a stout 11.7 cents to $3.587 and December had added 8.4 cents to $3.904. November crude oil eased 2 cents to $92.10/bbl.

Next-day prices at Northeast points slumped as warmer temperatures were forecast. "As long as lows stay out of the 40s, you will probably have lower pricing," said a Houston-based marketer. "What happens is that the high may reach mid-60s, but that's only for a little bit, and then it gets cold at night and loads and demand go way up.

Last year, a whopping 106 Bcf was injected, and the five-year average stands at 71 Bcf. Kyle Cooper of IAF Advisors expected a build of 47 Bcf, and a poll of 25 analysts by Reuters resulted in a sample mean of 48 Bcf with a range of 28-70 Bcf. Bentek Energy forecast an increase of 53 Bcf.

Sodergreen took up the issue of whether high-frequency trading (HFT) was positive for the markets and queried "Did anybody note that piece in the [Wall Street Journal] this week talking about market vols just ahead of the weekly natty gas storage report? More often than not, the volume of trades a few seconds before the report is released has gone from dozens to hundreds to sometimes thousands of trades in that pre-report sliver of time. We've seen the prices go up 5, 7, 9 centavos or more, only to ratchet back down in the wink of an eye. Hmm. We're thinking that humans can't move that fast. So, who can we thank for the price movement? Are [high-frequency traders] causing all that pre-report volatility? Looks like it. Is this a good thing or a bad thing? Is this momentary liquidity these strategies bring forth -- regardless of how fleeting -- good for the market or not? Is this an example of extreme market efficiency before our very eyes or tactical manipulation? Dunno. Maybe both."

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