With fears swirling over the possible one-two punch to Gulf of Mexico production from Tropical Storms Cindy and Dennis, August natural gas futures found themselves 30.4 cents higher at $7.475 by the end of the regular trading session Tuesday.
According to the Minerals Management Service, Cindy fears had shut in 3.52% of the Gulf’s daily natural gas output and 3.32% of its daily oil output on Tuesday, although more was expected to be shut in as the storm got closer (see related story). While Cindy crossed much of the Gulf in a more ladylike fashion, her winds were picking up to 70 mph or nearly hurricane force just before slamming the coast Tuesday night. Dennis was threatening to up the ante a notch, with Weather 2000 warning that it could become the first hurricane of the 2005 season.
The storm concerns also helped petroleum futures higher on Tuesday as well. August crude climbed 84 cents to settle at $59.59/bbl, while August heating oil closed 2.13 cents higher at $1.7324/gallon.
“Cindy is just a ripple out there. She won’t have enough time to really develop into anything really nasty,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “The Gulf is much more focused on Dennis, who could turn into a monster.”
As of Tuesday, forecasters were saying that Dennis would likely be just off Key West to the west side on Saturday. Kennedy said the question becomes, where does it go next? “The center of the cone of probability would be the Mississippi Delta, which is not good for oil and natural gas production,” he said.
However, Kennedy noted that you really can’t put that much credence into any landfall predictions while it is this far away. “Nevertheless, it is going to keep the sellers on the sidelines probably through Friday,” he said. “Short-covering is occurring because there is a tropical storm that is going to be in the Gulf over the next few days, but it is the guy behind Cindy that we are going to have to keep our eye on.”
Kennedy said resistance levels to the upside for August natural gas include $7.51 and then something in the low $5.70s.
Rafferty Technical Research’s Steve Blair said that while Cindy doesn’t look to be too scary, she is still forcing some oil and natural shut-ins in the Gulf. As for Dennis, the broker agreed with many that it is too soon to tell where the impact will be.
As for the futures market, the broker said he believes that sellers will be hard to find in the immediate near term. “After Cindy hits, the market will more than likely settle back down a bit as it waits for more information on Dennis,” Blair said. “I wouldn’t expect any kind of big sell-off, but you might see the market come off a little bit. However, it will be a temporary phenomenon.”
Outside the Gulf, warm weather should also support the case for higher demand and higher prices. For important energy markets in the Mid-Atlantic and industrialized Midwest, the National Weather Service (NWS) is predicting a higher than normal accumulation of cooling degree days (CDD). For the populous states of New York, New Jersey, and Pennsylvania for the week ending July 9, the NWS predicts a total of 54 CDD, or four more than normal. The heartland states of Ohio, Indiana, Michigan, Illinois, and Wisconsin are expected to see 72 CDD, or 20 above normal.
Tallies of CDD continue to run ahead of schedule. For the season, the Mid-Atlantic has so far endured 223 CDD, or 70 more than normal, and the industrialized Midwest states above have received 268 CDD, or 56 higher than normal.
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