Swing Trading Of Natural Gas Before Winter: Analysis Of Current Working Gas Storage Data

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Includes: UNG
by: A Farmer

Summary

I'm comparing the current refill of working gas in storage so far from past years by imputed weeks.

The result shows that refilling working natural gas in storage is on pace to meet EIA's adjusted expectations.

NG bears would swing the market if refill number around 100 Bcf before withdrawal season begins.

Long positions could be built up upon the market's dips waiting for the coming withdrawal season.

Swing trading might be a better choice when NG price fluctuates within a narrow range.

According to US Energy Information Administration's [EIA] newly released report (Thursday, Sep 25th, 2014), working gas (dry natural gas) in storage was 2,988 Bcf (Billion cubic feet) as of Friday, September 19th, 2014. This represents a net increase of 97 Bcf from the previous week. Since the beginning of current injection season (April to October) the total net change of working gas in storage was 2,166 Bcf as shown in Table 1.

Table 1: Net Increase of Working Gas Storage Since Beginning of Injection Season

Year 2014

5 Year Average (2009 - 2013)

Week Ending

Storage [bcf]

Increase from Last Week

Storage [bcf]

Change from 2014 [bcf]

Percentage of Change %

28-Mar

822

4-Apr

826

4

1,823

(997)

-54.7

11-Apr

850

24

1,860

(1,010)

-54.3

18-Apr

899

49

1,908

(1,009)

-52.9

25-Apr

981

82

1,965

(984)

-50.1

2-May

1,055

74

2,036

(981)

-48.2

9-May

1,160

105

2,119

(959)

-45.3

16-May

1,266

106

2,209

(943)

-42.7

23-May

1,380

114

2,302

(922)

-40

30-May

1,499

119

2,395

(896)

-37.4

6-Jun

1,606

107

2,483

(877)

-35.3

13-Jun

1,719

113

2,569

(850)

-33.1

20-Jun

1,829

110

2,651

(822)

-31

27-Jun

1,929

100

2,719

(790)

-29.1

4-Jul

2,022

93

2,791

(769)

-27.6

11-Jul

2,129

107

2,856

(727)

-25.4

18-Jul

2,219

90

2,902

(683)

-23.5

25-Jul

2,307

88

2,948

(641)

-21.7

1-Aug

2,389

82

2,997

(608)

-20.3

8-Aug

2,467

78

3,042

(575)

-18.9

15-Aug

2,555

88

3,090

(535)

-17.3

22-Aug

2,630

75

3,148

(518)

-16.4

29-Aug

2,709

79

3,204

(495)

-15.4

05-Sep

2,801

92

3,264

(463)

-14.2

12-Sep

2,891

90

3,335

(444)

-13.3

19-Sep

2,988

97

3,414

(426)

-12.5

Total Increase:

2,166

Note: Compiled from EIA data (same data source for other tables and figure, except Table 6).

Week ending April 4 week was the first week of 2014 Injection Season.

In SHORT-TERM ENERGY OUTLOOK, released on September 9, 2014, EIA projects working gas storage of 3,477 Bcf at the end of October. Thus, in the remaining 6 weeks, we have a task of 489 Bcf to meet the goal.

Is the net change of 97 Bcf in the new release good or bad? Can we bring back the working gas stock to EIA's projected 3,477 Bcf or higher by the end of the current injection season? We can compare it to history for a suggestion even under a background of the recent shale gas boom. In my Seeking Alpha article- Analysis Of Weekly EIA Working Gas Storage Data On Daily Basis - A New Look On Working Gas Storage Numbers, I transformed EIA's past weekly working gas storage data into a workable structure for 2014. The correctness of the transformed data on daily basis was validated by being able to derive the same 5-year moving average numbers as in EIA's 5-Year average spreadsheet. In this way, we can compare the working gas storage numbers in 2014 on the same month and same day among different years more accurately.

I am going to compare the current working gas in storage numbers to the past. First, I picked up the recent years from 2007 to 2013 as shown in Table 2. The table shows that since the beginning of this injection season (week ending April-04), the net change of storage beats the seven-year average in all weeks, except the April 4, April 11 and July 25 weeks. So far, we have an accumulated net increase that is 513 Bcf more than the seven-year average. This is not bad. But keep in mind, the net injections in the last seven years were far from 2,655 Bcf; that is the refill amount we need to meet EIA's target of 3,477 Bcf. The average net injection of the last seven years was only 2,046 Bcf - that is 609 Bcf less than 2,655 Bcf projected by EIA.

Table 2. Comparison of Working Gas Storages by Week*

____2007 - 2013____

____2014______

7 Days Ending on

Average of Storage

Change from Last Week

Storage

Change From Last Week

Compare to 2007 - 2013

28-Mar

1,695

.

822

4-Apr

1,704

9

826

4

-5

11-Apr

1,731

27

850

24

-3

18-Apr

1,768

37

899

49

12

25-Apr

1,832

64

981

82

18

2-May

1,905

73

1,055

74

1

9-May

1,991

86

1,160

105

19

16-May

2,081

90

1,266

106

16

23-May

2,175

94

1,380

114

20

30-May

2,273

98

1,499

119

21

6-Jun

2,361

88

1,606

107

19

13-Jun

2,444

83

1,719

113

30

20-Jun

2,529

85

1,829

110

25

27-Jun

2,602

73

1,929

100

27

4-Jul

2,680

78

2,022

93

15

11-Jul

2,752

72

2,129

107

35

18-Jul

2,807

55

2,219

90

35

25-Jul

2,859

107

2,307

88

-19

1-Aug

2,910

51

2,389

82

31

8-Aug

2,953

43

2,467

78

35

15-Aug

3,003

50

2,555

88

38

22-Aug

3,064

61

2,630

75

14

29-Aug

3,122

58

2,709

79

21

05-Sep

3,182

60

2,801

92

32

12-Sep

3,251

69

2,891

90

21

19-Sep

3,325

74

2,988

97

23

Total

1,630 +

2,166 +

536 +

* EIA's weekly reports are ending Friday. This table uses 2014's Friday's months and days to select weeks in other years.

Table 3. Net Changes of Working Gas Storage in Injection Seasons from 2007 to 2013

Year

Net Change

2007

1,964

2008

2,172

2009

2,179

2010

2,217

2011

2,223

2012

1,486

2013

2,081

Average of 7 Years

2,046

Note: Compiled from EIA data.

Injection Season: April - October.

We could argue that since the beginning of the injection season, we have 536 Bcf more injection than we did through this point in the last seven years (Table 2). If we could keep this rate of injection, we would fill a gap of 591 Bcf (2,637-2,046). I would like to crack the numbers further. I supplied Figure 1, which illustrates the net changes of working gas in storage by withdrawal and injection seasons.

From Figure 1, we notice that 2003 saw a net injection of 2,406 Bcf. That was close to EIA's projection number of 2,637 Bcf. Thus, I picked 2003 to do a case study, which is summarized in Table 4.

Table 4. Comparison of Working Gas Storages by Week*

__2003__

___2014___

2014 Versus 2003

7 Days Ending on

Storage

Change from Last Week

Storage

Change from Last Week

Storage Change

Difference of Changes#

28-Mar

696

.

822

4-Apr

688

-8

826

4

138

12

11-Apr

642

-46

850

24

208

70

18-Apr

702

60

899

49

197

(11)

25-Apr

754

52

981

82

227

30

2-May

836

82

1,055

74

219

(8)

9-May

900

64

1,160

105

260

41

16-May

990

90

1,266

106

276

16

23-May

1,085

95

1,380

114

295

19

30-May

1,199

114

1,499

119

300

5

6-Jun

1,324

125

1,606

107

282

(18)

13-Jun

1,438

114

1,719

113

281

(1)

20-Jun

1,565

127

1,829

110

264

(17)

27-Jun

1,662

97

1,929

100

267

3

4-Jul

1,809

147

2,022

93

213

(54)

11-Jul

1,904

95

2,129

107

225

12

18-Jul

1,981

77

2,219

90

238

13

25-Jul

2,062

81

2,307

88

245

(70)

1-Aug

2,138

76

2,389

82

251

6

8-Aug

2,222

84

2,467

78

245

(6)

15-Aug

2,299

77

2,555

88

256

11

22-Aug

2,352

53

2,630

75

278

22

29-Aug

2,419

67

2,709

79

290

12

05-Sep

2,518

99

2,801

92

283

(7)

12-Sep

2,619

101

2,891

90

272

(11)

19-Sep

2,719

100

2,988

97

269

(3)

Total

2.023

2,166

143

* EIA's weekly reports are ending Friday. This table uses 2014's Friday's months and days to select weeks in 2003.

* 04-April as start week of injection season.

# Difference of the changes from the last week between two years.

Table 4 tells us that in the past 25 weeks, we've had 143 Bcf more refill than we did in 2003. In the rest of 6 refill weeks, we need a net increase of 489 Bcf to meet EIA's target, averaging about 81.5 Bcf/week. As September is a month typical with larger injection figures, I hereby confirm my previous opinion that we are on the way to meet the EIA's forecast of 3,477 Bcf in storage if the current refill momentum is maintained or improves. This point of view is also strengthened by the current EIA's Natural Gas Weekly Update Supply and Demand tables:

U.S. Natural Gas Supply - Gas Week: (9/17/14 - 9/24/14)

Percent change for week compared with:

last year

last week

Gross Production

7.65%

-0.97%

Dry Production

7.58%

-0.96%

Canadian Imports

-4.87%

3.26%

LNG Imports

-67.29%

3.02%

Total Supply

6.40%

-0.69%

Source: BENTEK Energy LLC

U.S. Consumption - Gas Week: (9/17/14 - 9/24/14)

Percent change for week compared with:

last year

last week

U.S. Consumption

3.40%

-4.90%

Power

4.90%

-4.60%

Industrial

2.50%

-0.40%

Residential/Commercial

2.20%

-11.50%

Total Demand

3.70%

-4.90%

Source: BENTEK Energy LLC

Some Seeking Alpha readers were against my model of comparison to 2003's data, as 2003 was a pre-shale year without robust NG output increase overtimes. But I think this point of view can only support my model. In the rest of 6 weeks towards the end of October in 2003, we had a net injection of 436 Bcf as shown in Table 5, which is very close to old 489 Bcf that we need for 2014 to meet EIA's target. Please bear in mind, in 2003, there was a very high September's refill and an average October's compared to 2000-2013's injection statistics (Table 7). Based on injection behavior in September 2003 and the last three weeks refill numbers, I confirm my previous estimate that net injection of this September should be in the range of 380-410 Bcf, a good but not exciting number.

Table 5: Net Increase of Working Gas Storage in the Next 8 Weeks of 2003 year Injection Season

Week Ending on

Storage

Change from Last Week

26-Sep

2,820

101

3-Oct

2,904

84

10-Oct

2,981

77

17-Oct

3,066

85

24-Oct

3,121

55

31-Oct

3,155

34

Total:

436 [bcf]

Table 6. Comparison of Accumulated Cooling Degree Day (CDD) with 2014 NG Storage Net Refill by Weeks

Accumulated CDD since Beginning of Injection Season

The Last 7 Days Accumulated CDD

2014 NG Storage Net

Refill by Week [bcf]

2014 Week Ending

5 Year Average

2014

% Change

5 Year Average

2014

% Change

4-Apr

4.2

5

19

6.2

6

-3.2

4

11-Apr

12.2

12

-1.6

8

7

-12.5

24

18-Apr

19.8

17

-14.1

7.6

5

-34.2

49

25-Apr

30.4

24

-21.1

10.6

7

-34.0

82

2-May

46

38

-17.4

15.6

14

-10.3

74

9-May

64.2

59

-8.1

18.2

21

15.4

105

16-May

84.6

87

2.8

20.4

28

37.3

106

23-May

110.6

108

-2.4

26

21

-19.2

114

30-May

152.4

146

-4.2

41.8

38

-9.1

119

6-Jun

197.6

191

-3.3

45.2

45

-0.4

107

13-Jun

247

234

-5.3

49.4

43

-13.0

113

20-Jun

303.2

292

-3.7

56.2

58

3.2

110

27-Jun

375.6

353

-6

72.4

61

-15.7

100

4-Jul

448.6

426

-5

73

73

0.0

93

11-Jul

531.2

496

-6.6

82.6

70

-15.3

107

18-Jul

615

560

-8.9

83.8

64

-23.6

90

25-Jul

701.4

628

-10.5

86.4

68

-21.3

88

1-Aug

778.9

691

-11.2

77.8

64

-17.7

82

8-Aug

859.2

755

-12.1

81.2

64

-21.2

78

15-Aug

933.6

815

-12.7

74.4

60

-19.4

88

22-Aug

1,003.6

884

-11.9

70

69

-1.4

75

29-Aug

1,070.2

952

-11.0

66.6

68

2.1

79

05-Sep

1,136.0

1,027

-9.6

65.8

75

14.0

92

12-Sep

1,183.2

1,079

-8.8

47.2

52

10.2

90

19-Sep

1,219,2

1,116

-8.5

36.0

37

2.8

97

Note: Accumulated CDD is calculated by adding daily CDD since April 1st or the last seven days.

65°F is used as base temperature.

This table is compiled from NOAA Degree Days Statistics database.

This week's number (97 Bcf) is less than widely expected over 100 Bcf. NG future market reacted positively upon the report release, advancing the nearest-month NG future contract price to around $4/MMBtu area again. But I think that fundamentals of NG supply and demand remain unchanged, which should guide us by winter. NG future bears would not give up easily and are pushing the near-month price towards $3.5-$3.7/MMBtu area in the left 6 weeks of injection season, especially in the rest time of September. Accordingly, we could build up our long positions at the market lows, depending on your risk-tolerance, waiting for the beginning of withdrawal season when wind changes to demand side or swing trading for a small profit meanwhile. I advise readers to be cautious in trading natural gas underlying securities such as United States Natural Gas ETF (NYSEARCA:UNG), VelocityShares 3x Long Natural Gas ETN (NYSEARCA:UGAZ) and other natural gas ETFs. Naïve traders should select the suitable investment tools and set exit points beforehand, as those ETFs most of time are in Contango, paying a time premium like option calls in exchange of a possible price appreciation as time elapses. Experienced traders may make short-term, only long speculative bets on fluctuations within the ranges of $3.5-$4/MMBtu based on the nearest-month natural gas future contract price though. I doubt if bears can move an inch cross $3.7/MMBtu and stay there through October. That floor has so far been rock-solid. Is the strong refill of 2014 injection season coming from supply increase only? Actually, we have had a cooler than average summer so far. From Table 6, we notice that there is about 8.5% less accumulative CDD (US continental, population weighted) in 2014 compared to its five-year (2009-2013) average. This undoubtedly has contributed a lot to 2014 working gas storage build-up, as natural gas fired turbines are not called upon as often to respond to heat waves. Careful SA readers could find some interesting connect between CDDs and NG refill on weekly basis in Table 6.

Lastly, I prepared Table 7 and 8 that may be useful for readers interested in trading natural gas-related securities. Readers with less statistical knowledge may only want to pay attention to mean, minimum and maximum in Table 7 though. Some SA readers kindly pointed out that Table 7 failed to include robust 2014 natural gas output increase. The author therefore agrees that about 20 Bcf/week more could be added to building your model when referencing Table 7. Table 8 lists working gas injection figures in September and October (2003, 2009 - 2013) as we could learn something from the past about NG refill behavior in these two months. The refill rate in October generally would be smaller than that in September as demonstrated in Table 8. The author suggests SA readers pay more attention to the trend of the difference between the current working gas storage figure with its 5-year average, that is said, whether it is diverging or converging. With the current strong refill momentum, two curves are steadily converging, thus it is hard to convince the market to pay HH spot price more than $4/MMBtu substantially before winter as demonstrated by the two figures below.

Table 7. Simple Statistics of Natural Gas Injection Amount by Months in Injection Seasons from 2000-2013

Mean

Standard

Standard

95% Confidence Interval

Month

(Average)

Minimum

Maximum

Median

Deviation

Error

Low Limit

High Limit

April

192

46

360

197

80

21

146

238

May

387

231

479

402

69

18

347

427

June

354

232

469

342

62

16

318

389

July

281

134

385

282

76

20

237

325

August

244

127

350

240

69

18

204

284

September

328

269

411

313

47

12

301

355

October

239

87

385

245

79

21

194

285

Sum of 7 Months

2,025

1,126

2,839

1,747

2,303

Note: Injection Season: April - October.

95% confidence interval is computed assuming net changes (Injection amount) are normally distributed over years by months in inject season and should be interpreted with caution.

Table 8. Historical Working Gas Injection Data [bcf] in September and October

September

October

year

Storage at End of Month

Change from August

Storage at End of Month

Change from September

% Change Oct. Vs. Sep.

2003

2,845

409

3,130

285

-30.3

2009

3,646

287

3,810

164

-42.9

2010

3,508

355

3,851

343

-3.4

2011

3,416

397

3,804

388

-2.3

2012

3,693

287

3,929

236

-17.8

2013

3,565

354

3,816

251

-29.1

5-Year Average (2009 - 2013)

336

3,842

276.4

-19.1

Compiled from EIA data source.

I am keeping a close watch on the progress of working gas in storage refill and will share my research with Seeking Alpha readers accordingly.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Additional disclosure: I am trading NG future contracts occasionally. These are just my personal opinions formulated when trading NG underlying securities other than NG ETFs without any third party interest, which cannot be interpreted as trading or investment advices and suggestions in anyway. Readers should be aware of high investment risk in energy sectors, especially in coal and natural gas industries, which are highly speculative. Readers should consult their own financial advisers before making any investment decision and trading. It is to the best of author's effort to collect and further calculate EIA's data in this article with accuracy. Readers should take due diligence in reading all numbers in this article and are not encouraged to use these numbers in any purpose without their own validation.