Gas Petrospective – November 2, 2010

Natural gas prices dropped more than 20 cents per million Btu yesterday as the novelty of cold temperatures seemingly wore off. After rallying for two days, the bulls had the rug pulled out from under them and trading returned to its usual preoccupations with high inventories, poor industrial baseload demand, and plentiful production, especially from relatively new shale-gas formations.

Yesterday’s decline forced prices to return three-fifths of the gains they had posted last week and 5% of their net value in a day. This was a tough day for the bulls, which had their first real glimmer of hope last week. That hope has not been snuffed out, but a part of it may have been put back in mothballs for a time. A number of observers felt that the rally last week had been unusual, and that yesterday’s steep decline returned the market to normal.

The bottom line is probably back where it has typically been. Unless we have a long, cold winter, there should be more than enough natural gas in storage facilities to weather the demand. We have plenty of natural gas in underground storage, and production levels seem more than capable of meeting daily demand.

Tropical Storm Tomas is threatening Haiti, but it seems unlikely, at this stage, that it will pose any threat to oil or gas production in the US Gulf. Tomas was downgraded from a hurricane and it may strengthen later today to become a hurricane again, but after that it is expected to lose cohesion and velocity.

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