Natural gas futures gave back a few pennies on Friday but still settled north of $4 for the second straight day as the frenzy of tropical weather activity, which to date has spared U.S. energy interests, could be lining up for a Gulf of Mexico strike by the end of the month.
October natural gas futures reached a high of $4.106 during Friday's regular session but ended up closing the day at $4.024, down 3.8 cents from Thursday's finish but 14.1 cents higher than the previous week's close.
After a string of storms over the last few weeks has either marched northward in the Atlantic well off the East Coast or crossed the Yucatan Peninsula and slammed into Mexico, a change in the jet stream could put the Gulf of Mexico and the Gulf Coast back into the crosshairs.
While noting that no hurricanes have thus far made landfall in the U.S. this year, AccuWeather.com meteorologists said the forecasted weather patterns during the last part of September into October and the first part of November suggest that may be about to change.
Changing weather patterns and the approach of cool fronts from northern latitudes will help steer tropical storms and hurricanes onto the U.S. coastline in the Gulf, and potentially along the Atlantic Seaboard, according to AccuWeather.com Hurricane Expert Joe Bastardi.
Bastardi stated that the Cape Verde season typically winds down in October, as prior hurricanes have churned and cooled these waters. At the same time, the Asian monsoon diminishes, ending the parade of disturbances across Africa and the infamous tropical waves around the Cape Verde Islands. Breeding grounds during the last third of hurricane season typically migrate toward the Caribbean, Gulf of Mexico and far western Atlantic because of this.
"A switch from an El Nino to La Nina pattern is notorious for a jam-packed late hurricane season," Bastardi said. "There is an imbalance in the atmosphere, and much more energy has yet to be released."
A leading energy forecaster predicts a "potential storm" developing in the warm waters of the western Caribbean during late September. Matt Rogers, president of Commodity Weather Group, a Bethesda, MD forecasting firm, reported that computer models "are offering up a potential storm during this window with a favored development area in the very warm western Caribbean. While the storm's development has high model consistency and consensus, notice the probability of an actual Gulf production hit from a major storm is still quite low."
Rogers places the probability of a major (Category 3 or higher) storm making an actual Gulf production "hit" at only 5%, but the probability of precautionary evacuations and shut-ins is estimated at 20%. The likelihood of a Category 3 or higher storm during late September is 55%. Rogers' modeling and climatology show the window of storm development in the western Caribbean as Sept. 24-26, and the possible entry into the Gulf of Mexico between Sept. 28 and Oct. 3.
Some market watchers were not too impressed by the near-term hurricane outlook. "We've been hearing that chatter for some time now, but until we see one actually get into the Gulf, I'm not ready to jump," said Gene McGillian, an analyst at Tradition Energy.
Instead, McGillian told NGI he believes the recent price action is simply a "rebalancing" of the market. "The market oftentimes finds a low sometime in September before the season shift and the question is whether that $3.610 from Aug. 27 is that low. It could be," he said. "As we transition from the cooling season into the shoulder season with such a large overhanging net-short speculative position, there seems to be a little more push to put pressure on that side of the market. With the way the market shrugged off the 103 Bcf storage injection report Thursday, I think that shows the reluctance of new sellers to enter the market and push this thing down to $3.800 or below."
The market's ability to rally despite a bearish storage report impressed a number of traders.
"We are attaching a significant bullish interpretation to the market's ability to spike in the face of a bearish storage figure," said Jim Ritterbusch of Ritterbusch and Associates. His initial target of $4.06 was handily beaten as October futures posted a high of $4.144 on Thursday. "We feel that [Thursday's] violation is now setting the stage for further price gains that could carry up to the $4.20 area, especially on any more positive spillover from strengthening equity markets."
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