Futures Drop 45.4 Cents on the Week, But Support Remains
After bouncing off the $6.67 area for the second straight session, November natural gas futures ended by settling Friday at $6.709, down 9.4 cents. The remaining four months in the winter strip also closed lower, but by much smaller margins.
For the week, the prompt month closed 45.4 cents lower than the previous week. Coincidentally, the 9.4-cent decline Friday came close to matching the previous Friday's 9.2-cent loss.
Despite the loss for the week, some market-watchers aren't ready to sign off on the idea that this market is heading lower yet. Among the reasons for this belief is the fact that 1.7 Bcf/d is still offline in the Gulf of Mexico, which roughly equates to 13.82% of the Gulf's daily gas production. The Minerals Management Service said Friday that cumulative shut-in gas production from Hurricane Ivan currently stands at 86.026 Bcf, which is equivalent to 1.933% of the yearly production of gas in the Gulf.
Another prevalent theory for strong gas prices is the current strength in crude and heating oil futures. Crude hit a high Friday of $55/bbl before settling at $54.93, up 17 cents on the day. November heating oil hit a high of $1.55/gallon before settling at $1.5491, even on the day.
As to whether the run higher in natural gas futures is over, Rafferty Technical Research's Steve Blair said he doesn't think so.
"I still think that natural gas to a certain extent is riding the coattails of crude," he said. "Overall, the fundamentals are obviously bearish, but the market still has the same concerns."
Blair noted there are other considerations that may be helping to keep winter futures up also. "The price of heating oil is probably the other piece that continues to hold winter natural gas higher. Heating oil is so through the roof, that at $1.55, how many of the fuel-switching utilities will be pushed to natural gas, helping to keep the winter months strong?" he said. "Even with $8-9 gas for the winter months, there is still a huge disparity in price that would push you toward natural gas."
The Energy Information Administration reported Thursday that 67 Bcf was put into underground natural gas storage for the week ended Oct. 8. While the build was within industry estimates, it blew away the five-year average build of 56 Bcf, but fell short of last year's 77 Bcf injection for the week.
Touching on the storage situation, Blair said, "The question becomes whether we are going to be able to break the all-time record of 3,254 Bcf. However, once you get close to full with storage, it gets even harder to inject it in there. The bottom line is we have plenty of gas."
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