One of last summer’s biggest hits was Katy Perry’s ‘Last Friday Night (T.G.I.F.)’. I was one of the many who were guilty of humming along, living vicariously through the lyrics, intermittently shouting TGIF (Thank Goodness It’s Friday)! For the natural gas markets, the real action occurs on Thursdays, the day of the weekly Energy Information Agency (EIA) natural gas inventory report. The result can be volatile prices. Since market volatility is generally not end user-friendly, this is a warning to steer clear of buying natural gas and electricity at this time.
Each Thursday at 10:30 a.m. EST, the EIA releases a report of the quantity of natural gas that was either injected into or withdrawn from natural gas storage facilities across the United States. All storage operators are required to submit their operating data so all market participants learn the results at the same time.
If more gas has been consumed than produced, then the shortfall is taken out of storage, also known as a “withdrawal”. If more gas has been produced than consumed, the excess supply is put into storage, and is known as an “injection”. Withdrawals typically occur from November through March due to heating demand and injections occur from April to October when demand is reduced. Of course, there are other factors that can impact storage activity such as gas demand for power generation due to air conditioning needs in the summer, trends in gas production output, increased gas demand due to coal-to-gas switching in the generation stack due to low gas prices or EPA regulations, etc.
The net result of the report is a very useful measure of the balance of supply and demand of natural gas across the U.S. Why is the market more volatile on this day? The report provides information that everyone receives at the same time and the reaction is immediate. Many trade desks and analysts determine estimates in advance of the report and trade off of this information. Some natural gas storage reports are not very eventful if the market expectations are in line with the actual report. But when the market expectations are wrong, you will see huge swings in the positive and negative direction. Remember, when gas prices move, so do electricity prices, in most cases. And the initial reaction at 10:30 a.m. may not be the same as the final reaction as market participants digest the information.
In short, Thursday is typically the most volatile day of the week. Many traders are hesitant to quote a price just before release of the report. Power prices tend to come with a premium because suppliers want to guard against large price movements. If the market rises, your previous quote is worthless. If it falls, you’ll want a refreshed price anyway. It is better to wait until after the storage report until at least 11:00 a.m. EST to get a quote.
As an avid market watcher, storage is my favorite time of the week, and at the end of the day “I want to do it all again”, looking past the weekend so I can shout TGIS! on the next Thursday. For customers, Thursday mornings can be a better time to watch the market rather than being in the market.