While production is coming back online following Tropical Storm Cindy’s passing (see related story), concerns over her big brother, newly upgraded Hurricane Dennis, combined with bullish storage predictions helped keep natural gas futures elevated Wednesday.
After notching a high of $7.700, August natural gas futures ended up settling at $7.688, a 21.3-cent premium over Tuesday’s settle. Over the last two regular sessions, the prompt month has ballooned 51.7 cents.
The fun wasn’t relegated to only natural gas as August crude and heating oil also rose to the occasion due to storm pressure. August crude climbed $1.69 to settle at a new prompt-month high of $61.28/bbl, while August heating oil increased 6.24 cents to close at $1.7948/gallon.
“I don’t think there is any great opportunity to be a hero here in terms of picking a top in any of the markets,” said Tim Evans of IFR Energy Services. “I think part of what is allowing the petroleum side to go, go, go is that basically all of the potential sellers are backing away and taking the stance that if someone wants to pay a higher premium, then let them. At some point, those markets are like a rocket without a parachute.”
On the natural gas side, Evans noted that as of last Tuesday the funds were still net short 25,566 contracts, which is a fairly substantial net short position. “Given that they don’t all jump in and out at exactly the same place or for exactly for the same reasons, it normally would take a couple of weeks for them to work that off. Even though we are up 10% pricewise over where we were last Thursday or Friday, there still might be some short vulnerability. In addition, there is one more storm we can see and a whole pipeline that we can’t. You have to remember that this is still July…and August and September are really the prime hurricane months, so we still have the meat of the season ahead of us.”
Commenting on Dennis, which was upgraded to hurricane status late Wednesday, Evans said the storm “sure isn’t Hurricane Ivan” from 2004, which shut in roughly 173 Bcf. Hurricane Dennis is the first hurricane of the 2005 Atlantic season. “I don’t think Dennis is going to come anywhere close to [Ivan],” he said. “I do think there will be shut-ins in excess of what we’ve seen with Cindy. It will probably be more of a Category 2 storm as opposed to Hurricane Ivan, which was a Category 4.” The analyst noted that one school of thought holds that Ivan already wiped out the weaker structures in the Gulf, so Dennis would have to really pack a punch to damage the stronger structures that remain.
Others are more direct. “Dennis will be the worst Gulf hurricane before July 15th since Audrey of 1957. The current track is over the western part of Cuba or the Yucatan channel and toward the heart of Gulf energy interests west of 90 degrees longitude,” said Joe Bastardi, meteorologist with AccuWeather. He said the Florida peninsula is out of the woods for a direct hit, but “I can’t clear the Panhandle yet. It should be a Category 3 landfall with Louisiana the most likely target, but Texas, stay tuned.”
Audrey is a nasty analog. It was first detected over the southwestern Gulf of Mexico on June 24, 1957 and moved slowly northward as it became a tropical storm and a hurricane the next day. Rapid strengthening in the last six hours before landfall meant Audrey made landfall near the Texas-Louisiana border as a Category 4 hurricane. Audrey had 390 deaths attributed to it.
With all the attention being paid to the storms, Thursday’s natural gas storage report is being pushed into the background. The Energy Information Administration (EIA) will report stocks for the week ended July 1 at 10:30 a.m. EDT.
“We look for the storm factor to easily overshadow tomorrow’s storage data. Nonetheless, any injection of less than 75 Bcf would only perpetuate this week’s gains,” said Jim Ritterbusch of Ritterbusch and Associates. He said that most street ideas are around a 70-90 Bcf increase.
Evans said, “I think this storage report has the potential to be another bullish kicker. People are looking at 68 to 75 Bcf and that is all going to compare to the EIA’s five-year average injection of 93 Bcf.” Last year’s injection for the week was 107 Bcf. “If we chop 30 Bcf off of the year-ago number and 20 Bcf off of the five-year average, it is going to definitely reinforce the developing bullish sentiment here.” The analyst said he is personally looking for a build between 70 and 80 Bcf.
The ICAP-Nymex storage options auction on Wednesday revealed a consensus forecast of a 68 Bcf injection for Thursday’s report.
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