October natural gas fell again in uninspired trading that saw traders ascribe the losses to more mild weather patterns. October dropped 6.8 cents to $3.730 and November fell 6.5 cents to $3.820. November crude oil lost $1.00 to $85.92/bbl.
“I think that because it is milder weather, and all the disastrous weather has passed, we are sitting at the bottom end of the range. Prices may slip further, but I think you will start to see a base being built,” said a New York floor trader.
“I am looking for scale-down buying, but overall trading has been quiet and there haven’t been any panic-driven moves. We saw a little bit of selling October and buying the back months, but nothing much happening.”
The trader said he was looking for technical support at $3.66 and $3.53, but below that you would have a little leg down to the $3.42 to $3.36 area. “I don’t look for it to trade that low, but if you bought at $3.53 you would probably would have picked the bottom.”
“The natural gas market continues to sag, with Tropical Storm Ophelia seen staying out of the Gulf of Mexico and a temperature outlook that continues to allow above-average storage injections,” said Tim Evans of Citi Futures Perspective. “In our view the key remains how much of the bearish storage flow has already been discounted by the market’s drop from the $4.50 area. Withstanding the near-term pressure could set the stage for a seasonal rally back to $4.50 or $5.00 as heating demand emerges going into the winter.”
Above-average storage injections are exactly what analysts are expecting in the 10:30 a.m. EDT Energy Information Administration (EIA) storage report. Last year 78 Bcf was injected and the five-year average stands at 72 Bcf. This time around the builds are seen as being a lot higher. An early Energy Metro Desk survey conducted late last week had the build at 92 Bcf with a range of 84 Bcf to 104 Bcf. IAF Advisors in Houston is looking for an increase of 90 Bcf and a Reuters survey of 25 analysts showed an average of 91 Bcf with a range of 78 Bcf to 97 Bcf. Bears will be looking for a repeat of last Thursday’s performance when the October contract plunged 16.1 cents to $3.878 following a reported 87 Bcf increase, about 5 Bcf above what the market was expecting.
Analysts are not optimistic that fundamental factors can offer any support for natural gas prices. “Heavy shale gas production, poor industrial baseload that does not seem likely to improve as long as the economy is weak, and the waning of the summer tropical storm season were all reasons that continued to keep the bulls on their back heels in this market [Tuesday],” said Peter Beutel, publisher of Daily Oil Hedger and president of Cameron Hanover, a Connecticut-based energy consulting firm.
“Despite those reasons, Dow Jones noted that ‘a storm brewing in the Atlantic Ocean kept a floor under prices.’ Tropical storms are less likely to scoot into the U.S. Gulf in late September, although we have had late storms like Rita and Ivan that have caused trouble for natural gas producers in September.
“We have reached the stage where it takes something out of the ordinary to push gas prices higher. And the later it gets (in the summer), the less likely that becomes. Granted, we are getting closer to winter, but only because the calendar will eventually take us there. It is hardly imminent. Summer is only now giving way to autumn. We have a full season before winter starts and we have six weeks until the heating season begins. We are still keeping an eye out for late-season heat that could give us a boost in cooling demand, and weather forecasts just do not suggest anything coming to the critical Midwest or Northeast,” Beutel said in a morning note to clients.
A soft economic environment hasn’t helped either. “The weakening economy has always been a background factor in this market, but it was not used much to justify higher prices when we saw them earlier in the year, and they have not been a major influence pushing quotes lower. But traders are aware that a weaker economy translates into incrementally lower demand for power. With demand being squeezed and supplies of shale gas steadily rising, it is hard for prices to advance,” he said.
In its 5 p.m. EDT report the National Hurricane Center (NHC) reported that Tropical Storm Ophelia was moving west in the open Atlantic at 16 mph with sustained winds of 60 mph. It was about 1,165 miles east of the Leeward Islands, and NHC said “little change in strength was expected.” NHC projections show the storm headed north of Puerto Rico. NHC said it was also following a small area of low pressure just east of the northern Leeward Islands, but it was not expected to develop. It gave the system a “near 0” chance of becoming a tropical cyclone in the next 48 hours.
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