Gas Petrospective – September 14, 2010

Natural gas prices were up another 5.5 cents per million Btu yesterday, as traders continued to buy back short holdings while others were buying. There was a sense that it was just too dangerous to remain short in this market while Hurricanes Igor and Julia were still so many hundreds of miles out to sea. The consensus on both storms is that they will end up following Earl into the Atlantic, where one or both could die harmlessly. But, there were other meteorologists who felt it was still too early to dismiss these storms as threats to output in the northern US Gulf. At this stage, it seems prudent to get flat and wait them out.

Other traders were buying yesterday on a continuation of a sentiment first seen at the end of last week that prices had potentially reached their low points for this season. The shoulder months have been fairly thoroughly discounted, this feeling suggests, and traders will soon be trading November futures, for delivery during a month in which northern states have already hunkered down for winter.

And, traders also finally may have decided that there was enough improvement in storage levels over the summer to warrant a fresh look at prices. Last week’s EIA underground storage report showed a year-on-year deficit of 218 bcf (6.45%). A week earlier it had been 208 bcf (6.29%) and three weeks earlier it had been 185 bcf (5.79%). Seven weeks ago, it was 33 bcf (1.77%), so there is a trend of increasing the year-on-year deficit. Against the five-year level, last week’s report left us 166 bcf (5.54%) above the average, compared to 133 bcf (4.47%) a week earlier and 196 bcf (6.96%) three weeks before. Seven weeks ago, it had been 261 bcf (9.92%).

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