Gas Petrospective – September 15, 2010

Natural gas prices were up another 2.8 cents per million Btu in the front-month October yesterday, but November was unchanged and December futures were down 4.0 cents. We had net, new buying on Monday, so there might have been some follow-through buying yesterday, but the way it played out looks to us like it was more short-covering in October and even outright selling in December. We will have to look more closely at the open interest breakdown today. This breakdown may only mean something to a handful of observers, but it tells us that the new consensus – that prices may have discounted shoulder month trading already – could be premature. We see in yesterday’s activity signs that traders were covering shorts because of the tropical activity swirling all around the Atlantic and now in the lower Gulf of Mexico, where Tropical Storm Karl has formed.

We are certainly lucky that all these storms have formed later in the season, and it is fortunate that prevailing wind patterns suggest that none of these storms is likely to threaten major producing, gathering or distribution facilities. As it now stands, Tropical Storm Karl, shown above, is likely to pass over the Yucatan Peninsula and work almost due west. It is expected to die out before being able to re-gather velocity for a trip north by northeast. And the two hurricanes, Igor and Julia, which have reached Category Four and Two status, respectively, are expected to bear northwest and then turn almost due north before developing a northeastern curl as they die out over the cooler waters of the mid-Atlantic. The model tracks for both storms are shown below, on the right, and none of them has either storm making an American landfall.

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