Finding support in the low $4.60s area, October natural gas futures on Friday settled at $4.675, down 9.2 cents on the day. The sell-off appeared to be continuing unabated as traders heading into the weekend seemed unconcerned with the remote possibility that Hurricane Frances could knock out significant Gulf of Mexico production.
The prompt month attempted a run-up in morning trading, reaching a high of $4.84, but the contract was unable to hold that level.
“The market has been getting the heck beat out of it,” said a Washington, DC-based broker. “I thought that we would most likely see $4.70, but I didn’t think we would get there quite that quickly. Clearly I think we are oversold by anybody’s indicators, so I wouldn’t be surprised about a bounce sometime. With all of the recent down days, we are due a little bit of a relief rally somewhere, but I don’t know that that’s going to be all that much, and I don’t know if I would do anything except sell it when it ends.
“It clearly looks like that at least the front month natural is in a classic sell-off,” he said. “I think $4.50s are certainly the next objective and the prompt month is finally starting to pull down the winter months as well, which is the one thing that a lot of people have been talking about. What will be interesting to see is if the front month sells at $4.25-4.50, how much will the winter months get whacked down before they find their bottom as well.”
Although downgraded in strength, Frances continued to barrel towards Florida, forcing Gulf of Mexico producers to closely monitor the storm (see related story). Shell Exploration & Production Co. (SEPCo) took additional action. “Crosby subsea wells (Ursa platform tie-back) were shut-in late Thursday evening,” the company said. Total gross volumes shut in at Crosby were 13,900 b/d of crude and 20 MMcf/d of natural gas. The company assured that production at other locations had not been impacted.
“The one thing we learned just three weeks ago is that very strange things can happen once a hurricane gets close to land, especially once it passes over land,” the broker said. “If Frances took a turn once it got over land, it could end up exiting on the Gulf side of Florida and affect some production areas. That doesn’t appear to be what it’s going to do, but who knows? Obviously, the storm is bad for Florida real estate, but I don’t think it looks all that bad for Gulf oil and natural gas production.
“I think that the market wouldn’t have been selling off Friday if it was banking on much of a chance of impact in the Gulf. The category downgrade and the fact that the track right now doesn’t look threatening to the Gulf was enough to let people feel comfortable selling the market,” he said.
The National Hurricane Center (NHC) said late Friday afternoon that a hurricane warning was in effect for the east coast of Florida from Florida City northward to Flagler Beach, including Lake Okeechobee. Frances was moving toward the west/northwest at nearly 8 mph, but was expected to decrease in forward speed between Friday and Saturday. The good news was that wind speeds had decreased to 115 mph after crossing the Bahamas from their previous 145 mph level, knocking the storm back from a Category four to a Category three on the Saffir-Simpson scale.
As of 5 p.m. (EDT) Friday, Frances was 90 miles southeast of Freeport Grand Bahama Island and 200 miles east/southeast of the Florida lower east coast.
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