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Hold October Shorts, Trader Says, Yet October Called 3 Cents Higher

October natural gas is set to open 3 cents higher Friday morning at $2.82 as traders assess the loss of demand from now-Tropical Storm Hermine and start calculating a new set of storage builds going forward after Thursday's surprise Energy Information Administration inventory report. Overnight oil markets rebounded.

Traders are short-term bearish on the market. "While this big build [51 Bcf] doesn't necessarily put 4 Tcf back in play at the beginning of the withdrawal cycle in early November, it does shift focus back to the fact demand for cooling purposes will be declining going forward with the passing of the Labor Day holiday," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday.

"We feel that a portion of [Thursday's] selling was also related to the additional price plunge across the petroleum complex. Furthermore, the tropical storm factor ebbs and flows daily, and it appears that some storm premium was being taken out of the market today. While some of the systems are increasing in magnitude, they also appear to be veering away from the GOM production alleys and toward Florida where some East Coast cooling effects are expected to develop. We are maintaining a bearish trading stance and would suggest holding any short October positions in quest of an ultimate decline to around the $2.60 area.”

In the Gulf of Mexico (GOM) Thursday, shut-in numbers declined and workers were preparing to head back to platforms, as Hermine, now a tropical storm, made its long-awaited move toward the Florida coast.

At 800 a.m. EDT Friday the center of Hermine was located inland inland over southern Georgia. Hermine was moving toward the north-northeast near 14 mph, and this motion was expected to continue today and Saturday, the National Hurricane Center (NHC) said. On the forecast track, the center of Hermine was expected to continue to move across southeastern Georgia Friday, move across the coastal Carolinas Friday night and move offshore of the North Carolina coast on Saturday.

Maximum sustained winds have decreased to near 60 mph, with higher gusts. Additional weakening is forecast while the center of Hermine remains over land, and some re-strengthening is expected after the center moves offshore of the North Carolina coast on Saturday. Tropical-storm-force winds extend outward up to 175 miles from the center, NHC said.

Tensions eased Thursday surrounding any impact the storm might have on oil and gas operations. The Bureau of Safety and Environmental Enforcement (BSEE) on Thursday afternoon estimated that 242,836 b/d, or 15.18% of the current oil production in the GOM was shut in, down from 19.52% on Wednesday, and 307 MMcf/d, or 9.03% of natural gas production, down from 10.59% 24 hours earlier.

Based on data from offshore operator reports submitted through 11:30 a.m. CDT Thursday, personnel remained evacuated from 10 production platforms, the same number as on Wednesday (see Daily GPIAug. 31), and 1.3% of the 750 manned platforms in the GOM, according to BSEE.

In overnight Globex trading October crude oil rose 85 cents to $44.01/bbl and October RBOB gasoline added 3 cents to $1.3029/gal.

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