With production and personnel almost completely restored in the Gulf of Mexico (GOM) after Tropical Storm Lee’s passing and Tropical Storm Nate likely to steer clear of U.S. energy interests, traders on Friday put downward pressure on natural gas futures values. The October contract ended up dropping 6.5 cents on the day to close at $3.915, which is 4.3 cents higher than the previous week’s finish.
The October contract failed to venture north of $4 for the first time in three days on Friday as traders, who were handed a “slightly bearish” storage report Thursday and an even more bearish Energy Information Administration (EIA) Short Term Energy Outlook on Wednesday, were faced with a relatively quiet Gulf of Mexico headed into the weekend.
Thanks to “resilient” drilling activity during the past month despite lower natural gas spot and futures prices, the EIA on Wednesday lowered the Henry Hub price forecast for this year by 4 cents to $4.20/MMBtu and reduced the 2012 forecast by 11 cents to $4.30/MMBtu (see Daily GPI, Sept. 8). On Thursday the EIA reported that 64 Bcf was injected into underground storage for the week ending Sept. 2, which some market watchers deemed “slightly bearish” (see Daily GPI, Sept. 9).
“The futures market is pretty comfortable with prices hanging around these levels,” said Steve Blair, a broker with Rafferty Technical Research in New York. “Even with a lot of coal switching over the past few weeks, it really isn’t boosting gas prices because we have all of this shale gas that is there for the taking. Before shale, we would have definitely seen a bump.”
Blair emphasized that the addition of shale gas to the mix has really given the market a cushion. “A few years ago we hung on every storage report and every weather forecast,” he told NGI. “While those things certainly still matter, the market doesn’t respond to small events like it used to.”
Top analysts see the market with limited upside potential in the short run and needing a strong dose of weather. “We see limited bullish assistance from the weather factor within either the storm or temperature categories. Tropical Storm Nate is likely to remain well south of U.S. drilling platforms during the next few days, according to the NHC [National Hurricane Center]. Meanwhile, Hurricane Maria is veering in a northeasterly direction well away from the GOM region,” said Jim Ritterbusch of Ritterbusch and Associates. Nate is ultimately expected to hit Mexico’s Gulf Coast by Monday, according to the NHC.
“On the temperature front, updates appear a bit more bearish than [Thursday’s] indications with below-normal to normal temps expected across the eastern half of the U.S. The temperature and tropical storm outlooks appear conducive to some strong storage injections going forward through the balance of this month. From our perspective, the shoulder period has begun early and any significant price pops will be heavily contingent upon a major hurricane event into the GOM,” Ritterbusch said.
Technical analysts also contend that natural gas has shown no signs that it is ready to advance.
“No change,” said Brian LaRose, market analyst with United-ICAP. “To damage the case for further downside the A equals C objectives from $3.780 must first be exceeded; 0.618 A equals C cuts at $4.066. A equals C cuts at $4.200; 1.618 A equals C cuts at $4.416. To void the case for further downside the upper bounds of our triangular congestion must be exceeded (currently $4.782). Until these hurdles can be cleared we cannot technically confirm natgas has bottomed.”
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