Gas Petrospective – October 19, 2010

Natural gas prices dropped another 10.4 cents per million Btu on Monday, which brought them to new 13-month lows. It seems that traders have given up on last week’s hopes that $3.61 might turn into an important major low. Thursday’s EIA underground storage report showed another large build in storage levels, and that was enough to bring in heavy enough selling to press quotes to new recent lows. The bottom line remains the same that it has been now for more than two years; we have plenty of supplies, partially because of the new technologies being used to recover shale-gas, and partially because demand remains depressed – largely because of the economy, which continues to struggle.

Usually by this stage in October, with the November contract getting ready to hand over its spot as the expiring, front-month contract to December, we have solid bedrock of scaled-down buying by trade players. Over the last two years, this has been overwhelmed often by fund selling, although we did have an interlude earlier this month during which that selling seemed to have been placed on hold. In any event, the normal pre-December buying has not been anything terribly solid or deep this year and speculative pre-winter buying has been negligible. The result is a market that just cannot stay up. Even colder-than-normal autumn weather in the North has failed to help much this year.

Our biggest surprise remains (also) the same it has been now for all of 2010. We just do not understand how every little improvement in equities or the economy can have such major impacts on oil prices (pushing higher) and absolutely no influence on natural gas prices. We know that oil is much more of a global commodity, but gas is headed that way, and to see no impact at all puzzles us.

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