Despite revisiting sub-$9 prices for the third time over the last four sessions, expiring August natural gas futures tiptoed out the back door instead of making a grand exit on Tuesday as the contract quietly recorded a 5.4-cent gain to go off the board at $9.217. In contrast, September natural gas shaved 6.5 cents to finish the day at $9.130.
The August gas contract recorded a low of $8.934 in morning trade before moving higher in the afternoon. After gaining nearly $1.50 on Monday, September crude reverted to its recent spate of weakness on Tuesday. The prompt-month contract dropped $2.54 from Monday’s close to finish at $122.19/bbl.
Reflecting on the recent run-up in natural gas futures to a $13.694 high and the vociferous complaints that came from the chemical manufacturing industry (see Daily GPI, June 25), one energy broker said the fertilizer industry for one is reaping the rewards now.
“Just a couple of seasons ago we were talking about the death of the U.S. fertilizer industry due to the skyrocketing price of natural gas, which is used as a feedstock. But with grains prices so robust, fertilizer guys have opened those doors back up and are consuming natural gas at a healthy rate,” said a Washington, DC-based broker. “This pullback in natural gas prices is giving fertilizer producers some pretty good margins over the last few weeks. In a perfect world, they are buying natural gas cheap and selling fertilizer expensive, which the farmers are willing to pay because of strong food prices.”
The broker noted that the days of a national natural gas market are not numbered because the time has actually already expired. “It is not a matter of ‘ought to,’ it is a matter of ‘must’ think on a global perspective on natural gas,” he said. “If I’m buying natural gas on a national gas price and selling it on a crude oil index, then you better believe I am going to load up every cargo I can and ship it to a destination that prices on crude. Similarly, if I can buy fertilizer that is made with U.S. natural gas prices as opposed to European natural gas prices, then that sounds great to me. We now have to look at prices on a global framework, taking into account prices in Asia and Europe. It has already been decided that we have a global liquefied natural gas market. The question is how much of an impact that global market has on us.”
Looking at the current price environment for natural gas, some traders say unsupportive weather and a quiet Atlantic Basin place the path of least resistance for prices as lower.
“Although [Monday’s] market appeared to be propped up by the strength in the oil, sustaining price gains could prove difficult with the weather factor providing only limited support,” said Jim Ritterbusch of Ritterbusch and Associates. He conceded that above-normal temperatures appear to be spreading across a broad swath of the country, but differentials from normal “don’t yet appear sufficient to induce a significant upswing in gas-fired [electric generation] demand, and a lack of tropical wave development in the Atlantic is precluding the injection of any significant storm premium at the present time.”
Ritterbusch said he sees the September contract as “likely to gravitate” to the $8.640 area and doesn’t see it rising above $10.750 to $10.850.
Weather bulls see a test of just how “limited” weather support is. AccuWeather.com forecaster Bob Tarr said, “The heat that has been locked in place across the Southwest and southern Plains will be unlocked this weekend. Confidence is high that it will be a very hot weekend from the mid-Mississippi Valley through the Ohio Valley and Mid-Atlantic states.” The northern Great Lakes and parts of New England may also be hot, but the forecast is a bit more uncertain, he said.
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