NATURAL GAS STORAGE SURPRISE PROMPTS MASSIVE SHORT COVERING
By Walter Kurtz, Sober Look
Yesterday morning’s EIA natural gas in storage report took everyone by surprise. We started out with this projection.
Bloomberg: The U.S. Energy Department’s natural-gas inventory report, scheduled for release at 10:30 a.m. in Washington, will show that supplies rose 2.6 percent last week, according to a survey of Bloomberg users.
The government’s report will show that inventories gained 74 billion cubic feet in the week ended June 8 to 2.951 trillion cubic feet, according to the survey.
At 10:30AM the EIA had this to say: “Working gas in storage was 2,944 Bcf as of Friday, June 8, 2012, according to EIA estimates. This represents a net increase of 67 Bcf from the previous week.” This was visibly below the Bloomberg survey.
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| Working gas in underground storage compared with 5-year range (source EIA) |
So what’s the big deal? Again, we have a technical issue in the market. The nat gas market has been left for dead with the speculative part of the market piling into the short positions. A surprise in the inventory number sent the shorts covering. And in this market a shot covering is not a couple of percent. Natural gas futures spiked over 12% in a short period of time.
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| Natural gas active futures contract intraday |
It remains to be seen whether this rally will carry over to next week. But this is a good lesson for other markets with overextended short exposures such as oil, euros, etc.
5 Comments
RIGHT ! i’ve closed all my short bets on italian stocks (now ralllying), oil and copper. Also partially closed defensives like 30y treasuries. Bur NOT going long on anything. Rallies are short lived and totally unpredictable, shorting now in this oversold market is also dangerous. And in a deflaionay scenario being in cash is safe, sane and cheap.
Good overall advice. Thanx
The supplies went up by 67 instead of 74. This is supposed to be a bull indicator..? The storage is overflowing with natural gas with production much higher than before.
The short squeeze was applied by a certain billionaire who has a lot of money tied up in NG. He wants to ignite a rally, hence the squeeze.
I don’t think it is totally bs. Inventory always builds this time of year. What has caused NG to move up lately is that the record inventory compared to 5 year average has declined. The gap between current inventory, red line, and top of five year average, gray line, is decreasing.
We could still fill up NG storage this year which will definitely cause prices to drop, but with inventory builds declining, filling up storage isn’t a certainty.
I agree that T Boone’s comments were a a major market mover.
Who was this mysterious billionaire and how did you come across this information? Until you can provide some facts, your statement is completely meaningless.