EIA: Natural Gas Picture May Be Brightening

Despite Friday's bearish Natural Gas inventory report (i.e: a withdrawal of 87 bcf vs. Reuters estimates of 84bcf to 157bcf and Robry's estimate of -104.0 to 108.9), Natural Gas futures rallied to close up .17 at 7.85. This is just off the high of the day and is creeping up towards the significant $8 level.

The large storage gluts should continue to decline.

Early withdrawal estimates for this week's Natural Gas report range from 120 bcf to 150 bcf against last years withdrawal of just 56 bcf. Natural Gas storage has a pretty soft comparison versus last year's 56bcf. Storage should drop another 64bcf to 94bcf in the year over year inventory comparables this week.

Inventories dropped to 2.921 trillion cubic feet, 160 bcf, and are now 5 percent lower than last year.

The EIA will adjust the 5-year average to the 2003-2007 period. This will result in an increase of 64 Bcf for next week's report. Thus a substantial portion of the 5 year average surplus will be gone after Thursday's report.

JP Morgan says possible 200bcf withdrawal week of Jan 18th

"The next calendar week will be extremely mild in key natural gas consuming regions, but the following week should be far more supportive - depending on which meteorologist one trusts," the group said, adding that the week ended Jan. 18 could bring a 200 bcf or more drawdown should the colder weather materialize.

Canadian storage is about 100bcf lower than last year.

The most compelling point may be the incredible short position the large specs have in Natural Gas. The COT is showing large specs short to the tune of 110,000 contracts. I am sure some of this was bought back this week. However, prior to this summer the record short position was roughly around 55,000 contracts which shows just how dramatic this short position is.

YOY comparables are going to start to get a little more difficult after next week. However, there is beginning to be an interesting bullish argument for Natural Gas.

By Peter Everds
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