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Bill Costello
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I have moved to Westwood Holdings where I cover E & P, Oil Service, Utilities, and Refiners. I also co manage the small cap value fund.
  • Natural Gas Storage Preview 0 comments
    May 26, 2010 10:56 AM

    Natural Gas Storage Preview

    For the week ending May 21, 2010

     

     

    Energy Information Administration weekly storage report will be released at 10:30 Thursday.

     

    • The consensus estimates is an injection of between 90 and 105 Bcf.
    • Last year the injection was 106 Bcf and the 5-year average is an injection of 94 Bcf.
    • Based on weather and last week’s reading a range of 95 to a low 100’s number seems right.
    • Our model says 99.
    • If the injection is 99 Bcf that would put us at 2,264 Bcf (2.3 Tcf) in storage. That would be 66 above last year’s number and well above (by 313) the 5-year average.
    • This injection should come in between last years and the five-year average number.

     

     

     

    SUMMARY:

     

     

    We view this upcoming injection as an in line number, The Street is trying to warm up to natural gas and this   injection would be viewed as neutral in our opinion. A number below 100 would be slightly bullish for natural gas and at 90 or less you would see a relief rally. A number over last years would be bearish. However even with a bullish injection we are above last year by a large amount.  We just finished a mini analysis of storage trends and feel we should end the injection season in an over supply but not a disastrous position. Last year we injected +/- 1.7 Tcf during the remainder of the season and the five-year average is similar. If we proceed with similar injections this year we would be faced with over4 Tcf in storage next winter, which would be an all time high. If we inject 1 Bcf per day less than either last year or the five-year average we would end up with between 3.7 and 3.8 Tcf in storage. On the positive side we think industrial demand will improve and with our low natural gas prices less LNG will hit our shores this summer and fuel switching is positive on the margin.  However our concern is on the supply side, as production continues to grow. We need to slow the pace of drilling and while we saw some evidence of that happening the most recent data point from the Baker Hughes rig count was very disappointing. We think a decent number this week would support a $3.90 to $4.00 type number is a sort of floor for natural gas prices but we do see the supply and demand factors limiting any meaningful upside to the gas price. Even though oil prices have pulled back we feel more comfortable with the price outlook in that market than we do in the natural gas markets. For that reason:

    . We still favor oil centric names at this point in time but we feel the worst may have passed for the gas centric names



    Disclosure: No stocks mentioned
    Themes: Natural Gas
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