Gas Petrospective – October 18, 2010

Natural gas prices dropped another 12.2 cents per million Btu on Friday, and they established a new low for the last full year in the process. Sell-stops were triggered as prices touched off new lows and longs bailed out of what had looked to be a promising start to a bottom or at least a movement sideways as traders tried to look ahead to the coldest half of the year – and the demand that it typically brings this market. Once again, it was a weak EIA underground storage report that turned the lights out on a possible bottom.

There had been some tropical or subtropical activity late last week, and it had given pause to traders who still felt that this tropical season might have a trick or two left. And it well may, but it seems increasingly unlikely that it will lead to as much as the precautionary closure of even a single rig. For all intents and purposes, this tropical season seems to be over for natural gas traders.

Last week, the year-on-year deficit went from 149 bcf (4.08%) to 118 bcf (3.18%). And the surplus against the five-year average went from 220 bcf (6.71%) to 247 bcf (7.38%). Those figures continued to give the bears all the evidence they needed that this market is oversupplied.

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