Coming out of the Independence Day holiday weekend, August natural gas futures on Wednesday gave bears further reason to continue celebrating as the contract dropped significantly lower on the lack of hot weather and nearly nonexistent storm activity. After equaling the $5.750 spot month low from May late in Wednesday’s session, the prompt-month closed out the day at $5.765, down 33.9 cents.
To find a lower spot month close, one would have to crack open the history books to a few months shy of two years ago. On Sept. 28, 2004, front-month natural gas settled at $5.723.
Tensions surrounding the North Korea test missile launches couldn’t rattle natural gas traders on Wednesday, even as crude rallied $1.26 based on the news to close at $75.19/bbl, a new all-time record high for a front-month close. Wednesday’s settle narrowly edged out the $75.17/bbl front-month close on April 21.
“Natural gas futures continued to drop on Wednesday because there really is no weather to speak of,” said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. “The July Fourth period is traditionally a low-demand period and now we have moderating temperatures at least through this weekend. As of right now, where is your big cooling demand coming from? The desert Southwest? I don’t really care how hot it is at the ranger station in Death Valley.”
Kennedy added that the cash market is also “in the tank,” which also puts futures lower. “The hot weather is supposed to return in some areas this weekend, heading towards the Ohio Valley during the early part of next week. That’s fine; when the cash market responds, we probably will. Right now, there is just nothing supportive. Storage is in fine shape, there is no heat to speak of and there is no storm activity in the tropics.”
With futures revisiting that $5.750 spot low from late May, Kennedy said there could be a little more price room downward. “I think we could work a little lower here,” the broker said, noting that “we are talking dimes, not dollars.”
Top analysts see warm weather losing its price-making punch as summer progresses and supportive weather developments fail to materialize. “With the summer progressing, the temperature factor will be gradually removed as a major price determinant and the market will become more heavily reliant upon tropical storm developments for price strength,” said Jim Ritterbusch of Ritterbusch and Associates.
Punch or not, weather bulls might have temperatures on their side for the remainder of the week. The National Weather Service predicts that for the week ending July 8, the Mid-Atlantic states of New York, New Jersey and Pennsylvania will experience 60 cooling degree days (CDD), or 11 more than normal. The heavily industrialized states of Ohio, Indiana, Michigan, Illinois and Wisconsin are forecast to endure 61 CDD, or 10 more than normal. Cumulatively it’s a mixed bag. For calendar 2006 the Mid-Atlantic has seen 183 CDD, or 36 more than an average pace, but the Midwest tally of 191 CDD is 14 below a normal season.
AccuWeather is following four tropical waves in the Atlantic and Caribbean, but sees little indication of any threat. There are waves are at 30W (Cape Verde Islands), 45W (central Atlantic), 70W (Caribbean) and 85W (western Caribbean). “We see no support for any development by any of these waves,” the forecaster said.
In spite of forecasts for an active Atlantic hurricane season, AccuWeather points out that “this is much closer to a near normal season.” They note that last year at this time two tropical depressions became Cindy and Dennis, but so far this year only Alberto has formed. “We believe the reason we have not seen any quick development like last year is due to several factors. We continue to see strong shearing over the eastern Gulf of Mexico down into the Caribbean due to frequent upper level troughs forming over the eastern U.S. through the Caribbean. Current trends in longer-range computer output suggests these conditions should persist through the next five to seven days and perhaps longer.”
Because of the Independence Day holiday, the Energy Information Administration’s natural gas storage report for the week ending June 30 will be released on Friday between 10:30 a.m. and 10:40 a.m. EDT.
©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |