US gas price goes bananas

Courtesy of Sober Look.

This morning’s EIA natural gas in storage report took everyone by surprise. We started out with this projection.

Bloomberg: The U.S. Energy Department’s natural-gas inventory report, scheduled for release at 10:30 a.m. in Washington, will show that supplies rose 2.6 percent last week, according to a survey of Bloomberg users.

The government’s report will show that inventories gained 74 billion cubic feet in the week ended June 8 to 2.951 trillion cubic feet, according to the survey.

At 10:30AM the EIA had this to say: “Working gas in storage was 2,944 Bcf as of Friday, June 8, 2012, according to EIA estimates. This represents a net increase of67 Bcf from the previous week.” This was visibly below the Bloomberg survey.

So what’s the big deal? Again, we have a technical issue in the market. The nat gas market has been left for dead with the speculative part of the market piling into the short positions. A surprise in the inventory number sent the shorts covering. And in this market a short covering is not a couple of percent. Natural gas futures spiked over 12% in a short period of time.

It remains to be seen whether this rally will carry over to next week. But this is a good lesson for other markets with overextended short exposures such as oil, euros, etc.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

Comments

  1. maybe I’m missing something but shouldn’t increasing inventories be reducing the price?