Gas Petrospective – September 20, 2010

Natural gas prices dropped 3.8 cents per million Btu on Friday as natural gas traders did not have it in them to produce a sixth session higher. Traders may also have found cause for concern for baseload demand after consumer sentiment reportedly dropped in the latest survey.

Producers decided to lock in higher prices and speculative traders were taking profits after five days of higher quotes. And, there was finally a nod towards forecasts suggesting that tropical activity was unlikely to delay production, gathering or distribution efforts. Despite the widespread activity, none of it was especially threatening to the main areas of production or distribution of gas. There could have been short-covering in Friday’s mix, ahead of the weekend, on the off-chance that some new tropical threat could form, but prices traded on both sides of unchanged before finally finishing in the red for the day. Prices gained 14.1 cents for the week.

Baker-Hughes reported the addition of two more gas rigs in the latest week, and traders are starting to come to grips with the new economics of shale-gas production, which is profitable at lower price levels than was previously the case for conventional drilling operations. Traders never really discounted the bearish aspects of Thursday’s EIA storage report, and it seems that some selling came from that sector. It is difficult to say how big a factor economic news has been this year – either higher or lower.

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