Natural gas prices rallied sharply higher in today's session with the June 15 contract closing up for a third consecutive day.
Nearly all of the daily gains came in just one minute of trade following release of the EIA weekly storage report. The June contract rallied from a 2.559 low to a 2.692 high, a .133 or 5.2% gain at 9:30 am central. It then trended sideways to higher into the daily close settling at $2.752/MMBtu.
The impetus behind today's rally was an 81 Bcf injection as reported by the EIA which was 6 Bcf lower than the average analyst's pre-report guesstimate of 87 Bcf. This is in comparison to a 77 Bcf injection last year and a 5-year average injection of 55 Bcf.
Today's injection was above-average for a fourth week in a row, but not quite as high as pre-report estimates. As market expectations were decidedly bearish, the storage number caused a stampede of the short position holders who found the market exit much smaller and narrower than expected. This is what short-covering rallies are made of.
But was today truly just a short-covering rally or the beginning of a new bullish uptrend?
The news in the market this week has been very bearish including a new record high daily production number on Monday reported by Bentek of 73.8 Bcf exceeding the previous high of 73.5 Bcf (billion cubic feet) reached on December 20th, 2014.
Weather forecasts have also been bearish particularly the longer range summer forecasts predicting below-normal temperatures in both Texas and the upper Midwest, both heavy users of natural gas for summer cooling.
Storage injections have also been negative as the first four injections of the season during April have totaled 249 Bcf, 115 Bcf or 85% higher than the 5-year average.
So why did the market rally higher today? Possibly because of short-covering. But possibly because much of the bearish news has already been discounted into the market price. That is what futures markets do.
A hallmark of a short-covering rally is a counter trend rally higher lasting 2-4 days followed by a price drop back lower which erases most, if not all, of the short-covering rally gains.
Whether or not the natural gas market quickly sells back off over the next few sessions will be a good indication behind recent strength. If the market fails to sell back off very soon, a post-winter and possibly long term low could be set.
But there is a better chance that this week's upside strength will fail. If it does, new lows are expected in the market.
The next few days of trade in the natural gas market should be most interesting and important to watch.
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