Ringing in the official start to the 2007 Atlantic hurricane season, July natural gas futures traders on Friday put in a lackadaisical regular session that resulted in the contract settling at $7.878, down 5.7 cents on the day, but 8.3 cents higher than the previous week's close. However, later Friday afternoon, the National Hurricane Center (NHC) reported that Tropical Storm Barry had formed approximately 320 miles southwest of Tampa, FL, possibly giving the bulls a little more psychological ammo in the coming week.
The NHC said a tropical storm warning had been issued for the west coast of Florida from Bonita Beach northward to Keaton Beach, while a tropical storm watch was posted from north of Keaton Beach to St. Marks. Winds were expected to remain near 45 mph as it hits the coast.
While the hurricane season started with a bang late Friday afternoon with Barry's classification, futures were more of a snore during the regular session.
"Trading the natural gas market recently has been like watching paint dry. It is still stuck in a range and we are seeing the age-old fight between the fundamentals and the technicals," said Steve Blair, a broker with Rafferty Technical Research in New York. "We are also dealing with entities that want to keep this market propped up. From a fundamental standpoint, I don't understand why they are propping it up. Over the past 13 years, this is only the second time we have had more than 2 Bcf in storage before June, so gas in the ground is not the problem here. Last year was the only other time we saw storage hit that mark. I think there are a lot of people out there that are frustrated that bearish fundamentals don't equate to lower prices.
"It is almost like there are funds out there who are long the market and are doing what they can to prop this thing up until something happens to justify the price level. Comparing to last year, we are $1.30/MMBtu higher than a year ago with a very similar storage situation. Fundamentals clearly point downwards, but the market doesn't want to go."
Despite the market's current price level, Blair said the upside is still more at risk. "We will likely stay static at these levels until we get continued hot weather or a serious storm out in the Atlantic," he said. "Futures prices could push much higher if we got one or both of those scenarios. Now if the hot weather goes away and the Atlantic and Gulf of Mexico remain quiet for a while, we could see prices come off a little bit, but that could take weeks."
The big news on the week was the fact that June natural gas' $7.591 expiration on Tuesday marked the fourth consecutive month to go off of the board in the $7.50s. March expired earlier this year at $7.547 and the April and May contracts expired at $7.558 and $7.508, respectively.
Market technicians hint that even though spot futures have yet to make that decisive close above the psychologically important $8 threshold, a near-term price advance may be forthcoming. They are keying on the recent decline of spot futures from $8.23 on May 18 to $7.489 on May 29 to determine the market's next move.
Commenting on Thursday's session, United Energy's Walter Zimmerman said, "For the second day in a row [July] natural gas knocked up against the 0.618 retracement of the entire $8.230 to $7.489 spot decline but was unable to reverse lower." He added that since the market was successful in holding its ground it "suggests the potential for a further rally to the $8.075 level (the 0.7862 retracement)."
Assuming that July futures can hold on to $8.075, Zimmerman believes the next objective would carry July another 16 cents higher. "Our minimum near-term target on a decisive close above $8.075 would be a retest of the $8.2340 high as a retracement both from the $5.740 spot low and the $8.400 to $7.620 spot futures decline," he said.
The near-term weather outlook is also helping the bulls' case. MDA EarthSat in its Friday six- to 10-day forecast shows warm to hot patterns across much of the country. "While a raging record-breaking heat wave is not expected here, temperatures should continue to run in the above- to sometimes much-above-normal category across many key areas of the nation this period," the forecaster said. It noted that variability is still evident (the East continues to get pulses of warming rather than a sustained hot pattern), but "the general big picture is remaining somewhat stable here with a broad coverage area of above-normal temperatures."
To mark the beginning of hurricane season 2007, the U.S. Department of the Interior's Minerals Management Service (MMS) has activated a web site that brings together extensive hurricane-related information and resources designed to help describe and explain the preparations in advance of this hurricane season and the improvements instituted since the 2005 hurricane season, when Hurricanes Katrina and Rita cut a destructive path through the Gulf of Mexico and surrounding land mass region. The website (www.mms.gov/2007Hurricane/2007HurricaneSeason.htm) will be updated throughout the season with all available information regarding hurricane activity related to Gulf of Mexico energy operations.
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