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Prices in Rally That Wasn't Supposed to Happen

Some traders have said they adhere to a simple philosophy: when everyone is going in one direction, you should head the other way. That seemed somewhat applicable in the cash market Wednesday. With consensus opinion firmly established that prices had little to no chance of rallying anytime soon, what does the market do? It sees prices rise, often fairly strongly, at a solid majority of points.

There were several scattered instances of flat to nearly 35 cents lower numbers, but the overall gains ranged from a couple of pennies to nearly 45 cents. Most were in double digits.

One source said he was at a loss to explain what had changed the market's previous highly bearish mood. Sure, there are some patches of heating load due Thursday in the Midwest and Northeast, and a cold front will be entering the heretofore mild South, he said. But the northern market areas were in much the same situation Tuesday when prices were still falling at most points, he noted. And don't look to the screen for an answer, the source said. February natural gas futures extended losing sessions into a third straight day Wednesday with a decline of 9.8 cents.

A West Coast trader saw Wednesday's general firmness as an example of the proverbial "dead cat bounce." After an extended period of mostly downward movement, the market has to flatten out and consolidate occasionally, he said. And it could be that the cash market is looking for a bottom, he added.

Also, the trader said, cash gas may be showing some affinity for the continuing strength of crude oil futures, which again moved higher Wednesday with reports of significant drops last week in crude inventories. He noted that many refineries are finally shutting down (or about to do so) for maintenance that was delayed from last fall when hurricanes knocked out several Gulf Coast facilities, causing supply worries.

He reported starting to see more gas market participation from the industrial side again now that everybody has returned from the holidays. "They [industrial end-users] are calling more often again to ask 'How are you?' and 'What are gas prices doing?'"

A Gulf Coast producer said prices in his region started the morning near their lows and were tending to rise in late deals.

Because of the relatively small changes recently in Gulf of Mexico shut-in statistics, Minerals Management Service (MMS) said it will issue its production outage reports on Wednesday afternoons every two weeks from now on. "In the last few days there has been minimal improvement in the production numbers and this appears to be a trend that will continue with incremental movement over the next several months," MMS said. Based on reports from 48 companies, the agency counted 1,084.46 MMcf/d as still offline Wednesday, which was a drop of 51.10 MMcf/d from the previous tally Monday.

Here is a sampling of storage withdrawal estimates for the week ending Jan. 6: Jim Osten of Global Insight, 35 Bcf; First Enercast Financial, 30 Bcf; Reuters news service survey of 20 industry players, 25 Bcf (range of 10-60 Bcf); The Gerdes Group, 35 Bcf; and Citigroup's Kyle Cooper (final estimation), 27-37 Bcf.

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