Gas Petrospective – September 21, 2010

Natural gas prices dropped more than 20 cents yesterday as traders finally discounted last week’s underground storage report and funds returned to take short positions here again. We had five solid sessions with natural gas quotes higher before the selling came back, but once it did, it came in like one of the storms we had been watching.

Producers decided to lock in higher prices and speculative traders were taking profits and getting short again after five days of higher quotes. As we noted here yesterday, this market had not really had time to discount last week’s EIA underground storage figures, which were up by more than expected. We believe that traders were holding back on the sell side because of last week’s three storm centers. Even though none of them was likely to threaten natural gas producing, gathering or distribution points, their very existence was cause for concern. One never knows where tropical storms will end up going. As a result, it is always safer to be cautious while they are on the loose.

There are no major storms threatening the US Gulf right now. Tropical Storm Lisa has formed off the East Coast of Africa, and that is the next system to watch. Dow Jones quoted Planalytics as saying that “a weather front in the Atlantic Ocean that has protected the [US] Gulf from storms should disappear by next week,” and that could allow Lisa to track laterally rather than curl north-northwest by northeast the way the last several storms have – at least in theory. It is getting late in the season and the natural tendency is to curl anyway.

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