Gas Petrospective – October 13, 2010

Natural gas prices were mixed yesterday, with the front-month November contract gaining 2.8 cents per million Btu and December off 1.8 cents, followed by January down 2.3 cents. Traders were looking at the carrying costs and decided that November quotes were too low, but they apparently also saw deferred months as being too high. Dow Jones described the day’s activity as “bargain-hunting,” and there were certainly end-users who saw November prices worth locking in. The question is whether the selling in December and beyond came from managed money, swaps or producers. The latter group is probably not all that keen to sell December for any longer-term, but those putting November into storage, were almost surely locking in the other end, to be safe.

Traders were relieved that Hurricane Paula is unlikely to move north by northwest into the oil and gas concentration. It now looks likely to curl to the northeast, which might drench southern Florida, but would be unlikely to do much more than that, from an energy perspective.

We have plenty of natural gas in storage right now, and traders seem to be able to return to that as a factor (driving prices lower) repeatedly. We have watched a number of markets for 30 years and we cannot recall having seen the same fundamental factors being trotted out so many times, again and again, in the same market. Some of the original molecules that pushed quotes down from $13.69 still seem to be working on prices at $3.60. Although prices sold off yesterday, they still finished above their recent lows.

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