Gas Petrospective – October 4, 2010

Natural gas prices dropped another 7.5 cents per million Btu on Friday, touching levels not seen for three weeks. As has been the case a number of times this year, heavy buying in the oil complex seems to have resulted in heavy selling in natural gas. We have wondered if there is a direct spread being placed, but it does seem that there is some kind of a spread being put on involving long oil and short gas positions.

The bottom line is simple, right now. There is no weather factor driving demand or threatening supply. And without one or the other, the inescapable conclusion right now is that there is too much natural gas for the available demand. For the last two weeks, the best buying we have had has come from bargain-hunting and then from short-covering. We periodically see enough buying to believe that the move lower may have ended, but it seems that these lows become much less certain the further we get from them. We just don’t seem to be able to generate escape velocity on the upside.

Market observers will be watching a number of hot-spots along the Tropics, and there are several systems worth watching moving into this week. They tend to be less likely to hit the US Gulf by the time we have reached October, but they are still capable of giving us some precautionary closures, in some instances. We would tend to view storms at this time of year with less concern, but we would not be willing to ignore them completely. They still can inflict damage at critical points, under the wrong circumstances.

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