Gas Petrospective – October 1, 2010

Natural gas prices dropped 9.0 cents per million Btu yesterday as traders liquidated longs and sold short in reaction to this week’s EIA underground storage figures. The report showed a build of 74 bcf against expectations for a build of 69 bcf. The five-year average was a build of 71 bcf and last year there was a build of 64 bcf. As a result, this week’s figures were bearish in relation to just about everything – expectations, a year ago and the historical average.

As one would expect, this combined with a lack of any immediate storm threat to production facilities and normal shoulder month dynamics to give traders reasons to sell. At this time of year, there is no real heat to demand electricity for air-conditioning nor is there any real cold to consume gas molecules for space heating needs. And each day carries the southern states further away from cooling needs, here, while not yet really compensating yet with a corresponding increase in space-heating needs in the North. Those needs are still probably two months away, in earnest, and at least a month away in terms of light, early demand.

Tropical activity seems to have entered an entirely new phase. It does not threaten producers or refiners, but it does affect a number of their markets. It is possible that we now have a conveyor belt in place that is just going to suck warm moist air (laden with rain) from the Caribbean to the US East Coast. We have already had a full day-plus of thoroughly drenching rains across the East Coast and it promises to linger into next week. If the system behind this one follows the arrow to the right, it could be wet for a week.

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