Gas Petrospective – October 6, 2010

Natural gas prices were steady yesterday, gaining 1.6 cents per million Btu in the front-month, November, contract. Traders were “reluctant to test lower price levels,” according to the Dow Jones News roundup of activity in the Nymex natural gas ring yesterday.

That is a good description of a market that has declined in recent sessions and is now oversold as it nears major support. It also acknowledges some of the growing discomfort felt by energy analysts and traders with a market model in which oil prices are rising and gas prices are falling. At some point – and we have been waiting for this for most of the last two years – there has to be room for natural gas prices to move higher for the same reasons that oil prices are. From our perspective, it just makes no sense for investors to see oil as a natural store of value at the same time that it is a major industrial commodity – without seeing in natural gas at least some of the same recommending virtues.

Both energy complex members experience their heavies demand at the same time of year, during those months broadly considered as “winter.” We mean it in the sense of these being six colder months of the year, represented by the fourth and first quarters on the calendar. Some of the same demand factors should be in play, or out of play, for both markets.

We understand that we are getting past the grasp of tropical storms, and are still not in the grip of winter. Still, nuclear maintenance should boost gas demand at the very time we are preparing for the coming heating season.

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