Gas Petrospective – September 24, 2010

Natural gas prices were up more than five cents yesterday, and traders were buying on the formation of Tropical Storm Matthew in the Caribbean, just at the mouth of the Gulf of Mexico, and they were buying on a storage injection figure that was less than the average of survey results compiled by wire services. The consensus figure called for a build of 78 bcf, but we had a build of 73 bcf. The market saw that as being bullish.

What a difference a few weeks makes. Three weeks or a month ago, the injection would have been seen as not enough below expectations - or traders would have compared it to the 67 bcf added last year or the 69.6 bcf average added over the last five years. For months (maybe years), everything came up smelling stinky. Through the summer, traders ignored a steady decline in the year-to-year surplus, which ultimately became a deficit. And they ignored the steady erosion of the surplus against the five-year average for the time of year.

Now, we are in the shoulder months, and demand is light, and traders are suddenly excited about the slightest bullishness in injection figures. It makes no sense to us, but it does tell us the one most important thing in the universe: The trend has turned higher here. This week’s response to unimpressive numbers reinforces what was starting to look like a trend. It is a nascent trend that could turn back down at any moment. But, it is a trend in motion right now and it is telling us prices can move higher more easily here.

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