Gas Petrospective – November 22, 2010

Natural gas prices were up 15.7 cents per million Btu on Friday, as traders covered shorts fairly aggressively going into the weekend. We are getting into the time of year when we will start seeing withdrawals, rather than builds, in the weekly storage statistics, and temperatures are going to determine how much of a draw – or whether we even have a draw or a build – in the week’s numbers. Traders were betting on Friday that we are entering a period during which temperatures will be cold enough to start giving us decent drawdowns from storage.

Last week’s EIA storage build was lower than had been expected and was less than had been seen on average in previous years (at least over the previous five years). It was also less of a build than the one that had been seen the previous year. It had a number of bullish factors working for it, everything except the headline reaction, which was the rather unfortunate, “EIA Stocks Reach New Record.” The fact that it was a record that eclipsed the old one by just three bcf did not seem to be hugely important to traders on Thursday.

On Friday, though, traders were able to look slightly farther ahead. And, they were also trying to put their books in order for what is typically one of the most difficult trading weeks of any year. Thanksgiving week is typically the beginning of the end of the year. Many traders that have had good or profitable years tend to see Thanksgiving as a time to book profits and cut back on their risk exposure. Thanksgiving week is an especially difficult one to trade, because so many traders are looking to get out of existing positions rather than looking to enter new ones. It tends to make this abbreviated week one of lurching moves as traders get out of positions in bunches that tend not to be repeated.

 Technical Recap

Natural Gas Options Report



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