Natural gas futures chopped lower yesterday in a tight, mostlyfeatureless session as traders continued to factor in the nowimminent threat of warming weather for much of the nation. Wideningits discount to outer months, the March contract was the hardesthit by the sell-off, tumbling 2.9 cents to finish at $2.541.Estimated volume was very modest, with just 44,670 contractschanging hands.
Most traders were quick to point to moderating temperatures forMonday’s price erosion, which began late in the session last Fridayupon the release of a bearish six- to 10-day forecast from theNational Weather Service. Prices tumbled late Friday, slippingalmost a dime from highs posted earlier in the day.
For bulls, the weather outlook did not get much brighter overthe weekend. As expected, the NWS Monday reconfirmed last week’sforecast calling for above normal temperatures across most of thecountry. In fact, the only change between reports issued Friday andyesterday was the slight enlargement of the small area expected toexperience normal temperatures. The latest predictions say thenorthern quarter of the country will see seasonal readings whilethe rest of the country will be above-normal.
For some, however, the weather report and subsequent reaction bythe market was a source of bullish optimism going forward.”Forecasters stopped just short of saying the polar ice caps aregoing to melt and this market only gave up 3 cents,” a Houstontrader said. “What happens in a few days if forecasts call for areturn to the normal and below-normal weather we have seen allwinter?”
And while it is still too early to tell what the next round ofmedium range forecasts will hold, it is never too early to talkabout the impact of production on summer prices. According toFlorida-based Raymond James and Associates, production increaseswill not be seen until late 2000 despite rig counts roaring backfrom mid-1999 lows. “In a summer-to-summer basis, U.S. gasproduction in the summer of 2000 should be down approximately 1Bcf/day or 2% below the average gas production seen in the summerof 1999.” It is this prediction, along with inputs such as rigsdrilling for gas, rig efficiency, and current gas well declinerates that has RJA standing behind its $3/Mcf natural gas priceforecast for 2000.
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