September natural gas futures spiraled lower for a third consecutive session Wednesday, creating new lows on its way to a close of $5.578, down 23.9 cents from Tuesday’s close. Since Hurricane Dean set firm sights on a more westerly Gulf of Mexico-sparing course over the weekend, the prompt-month contract has shed an astounding $1.432.
September’s low of $5.560 and close of $5.578 on Wednesday continued setting new lows for the move. The last time a prompt month traded lower was nearly 10 months ago ($5.460 on Oct. 3, 2006) and the last time a prompt month closed lower was almost 11 months ago ($5.392 on Sept. 28, 2006). While the rapid collapse of the last three days coincided with Dean steering away from the U.S. portion of the Gulf, some market experts believe that the hurricane’s change of path is not responsible for the entire move.
“I think the drop we have seen in natural gas futures over the last three days is more than just subtracting the Hurricane Dean premium,” said Steve Blair, a broker with Rafferty Technical Research in New York. “I think Monday took out the Dean premium and the rest of this drop — from $6 on down — is new shorts in the market and a resumption of the downtrend. We have support at $5.460, but below that it gets a little murky.”
Blair added that he found it interesting that the market only ran up to a little above $7 on fears that Dean might impact U.S. offshore facilities. “If the Gulf was still threatened as Dean got closer, the market would have shot a lot higher.
“I think the free-fall lower of the last three sessions basically backs up what we have known all along. The fact is we have plenty of gas and not really any worries about supply. With the Dean premium out of the way, we are probably getting back to more realistic price levels based on our current supply.”
Commenting on the threat to extended oil shut-ins offshore Mexico, Blair said he was surprised that crude futures were so weak after Pemex on Monday announced that 2.65 million b/d of crude was shut in. “The market really has not reacted to it,” he said. “All of the crude produced in that area basically comes to the U.S., but October crude futures continued lower on Wednesday, dropping an additional 31 cents to close at $69.26/bbl.” As of Wednesday afternoon, Pemex was reporting that despite a direct hit from Dean, the company had no damage to report yet.
Taking a look at Thursday morning’s natural gas storage report for the week ended Aug. 17, Blair said he has heard a respected source calling for an injection as low as 15 Bcf. However, the broker noted that most other industry estimates are looking for an injection in the high 20s Bcf to low 30s Bcf. “It will be interesting to see what comes out Thursday. If the market is looking for a 30 Bcf injection and we get a 15 Bcf build instead, I’m sure we will see a nice healthy bounce.”
Golden, CO-based Bentek Energy’s flow model indicates an injection of 25 Bcf for the week, bringing stocks 2.8% above last year’s five-year high and 13% above the five-year average. “Storage fill nationwide increased 0.8%, from 78.6% to 79.5% this week,” the research and analysis firm said. “The largest percentage increase was at Ft. Morgan-CIG, up 6.5% from 77.7% to 84.2%. Egan decreased by 4.4%, from 82.1% to 77.7%.”
Breaking down its 25 Bcf injection expectation, Bentek said it expects a 34 Bcf injection in the East region and withdrawals of 6 Bcf and 3 Bcf for the Producing and West regions, respectively.
Whether an injection of 15 Bcf or 35 Bcf is realized, the number will pale in comparison to last year’s 54 Bcf injection and the five-year average build for the week of 61 Bcf.
For the moment new tropical activity in the Atlantic is minimal. AccuWeather is following two areas of disturbance. “One area is located just northeast of South America near 50W, and the other is just north of Puerto Rico. The area of showers and thunderstorms just east of the Lesser Antilles along 50W is very disorganized with no coherent lower-level or upper-level feature. The disturbed area of weather north of Puerto Rico is the northern part of a westward-moving tropical wave that is roughly along 70W. Computer models show only slight support for development in a day or two,” the forecaster reported.
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