August 7, 2003

The DOE released its weekly natural gas working storage data, reporting a 74 bcf net increase from the previous week which had no revisions.  Working storage totaled 2,106 bcf as of Friday, August 1.  The details are provided below:

 

The build was on the positive side of consensus expectations, and once again remains consistent with our long-standing forecast.  Our Base Case targeted end July storage at 2.093 tcf, and technically on a ratable basis the latest data would suggest end July storage at about 2.096 tcf.  Therefore, we will retain our outlook that end-October storage comes in around 2.94 tcf. 

Thus far the market is reacting as we would expect it to.  In previous reports we highlighted the significant net short position of managed funds, suggesting that any one week’s worth of constructive storage data would lead to a short covering rally back to $5.00 per mcf with oil prices remaining firm over the short term. 

The lower storage build at least partly reflects some switching back to gas from oil, particularly distillate, which we have learned in talking to some utilities  has occurred much more quickly than generally perceived.  It remains to be seen whether the market will settle above $5.00 per mcf, but if it does, there appears to be a technical target at around $5.20 per mcf which traders will probably wish to challenge as funds complete their short covering. 

William H. Brown, III