Despite precipitous drops in the petroleum futures sector, natural gas future trading was fairly quiet Tuesday as traders appeared to be on the sidelines waiting for the petroleum markets to adjust to last week’s natural gas futures declines. After trading between $4.900 and $5.120, October natural gas ended up closing at $5.006, up 6.4 cents on the day.

October crude came off $2.14 to close at $61.66/bbl, while October unleaded gasoline and October heating oil declined by 7.58 cents and 3.41 cents, respectively, to close at $1.5038/gallon and $1.6916/gallon.

“It was really ugly on the petroleum side Tuesday. Everything came off pretty significantly. It seems like there is the idea out there — rightly or wrongly — that we are looking at a slowdown not only here but abroad in economic activity that would dampen commodity demand,” said a Washington, DC-based broker. “I think that enough damage was done last week in natural gas futures, so the other energy commodities are catching up this week.”

While some have attributed last week’s plummet in natural gas futures prices in part to Amaranth Advisors LLC getting out of all of its ill-advised long positions (see Daily GPI, Sept. 19), the broker said market fundamentals were a big part of the decline. “The market dropped in large part due to fundamental activity,” she said. “We all saw the 108 Bcf injection last week didn’t we? Fund issues or no fund issues, it would be silly for the market not to have gone lower given that we have had no hurricanes in the Gulf of Mexico, we have storage [nearly full] and there is talk of a warmer winter. If I were a commercial entity in this market and I owned inventory, I would be selling against it.

“When prices go higher, I get a lot of talk about how hedge funds are distorting the market, but when prices go down, the consumers don’t thank the funds,” the broker said. “What Amaranth and MotherRock before it have shown, is that hedge funds can screw up, believe it or not. It’s one thing to have money and to trade on margin, but from what I have heard on Amaranth and MotherRock, they were also getting a loan of money, which compounded the problem. However, everything is speculation at this point.”

It’s still unclear what the short-term and long-term impacts on the market will be from the huge losses reportedly sustained by hedge fund Amaranth. One West Coast fund manager said that “the demise of Amaranth Advisors’ energy portfolio is so big, there’s a lot of ‘stuff’ that can and will happen over the next two to 15 days.” He said he is not sure what exactly will happen, but he called the action “statistically significant.”

Looking at near-term price direction for natural gas, the Washington, DC-based broker said she still sees lower prices. “I don’t think we have washed all of the length out of here yet,” she said. “Nothing goes in a straight line, but I think this market is still susceptible to lower prices if we get some more hefty storage injections. Activity in natural gas could be quiet until we see the next storage report.”

Use of natural gas for either heating or cooling this week is likely to be minimal. For the week ending Sept. 23, the National Weather Service (NWS) forecasts low accumulations of both cooling degree days (CDD) and heating degree days (HDD) for populous energy markets. New York, New Jersey and Pennsylvania are expected to see only 14 CDD, or five above normal and Ohio, Indiana, Michigan, Illinois and Wisconsin are projected to enjoy just seven CDD or two below normal. Expectations for heating requirements are also low. The NWS forecasts 22 HDD for the Mid-Atlantic states above, or eight below normal and 43 HDD for the Midwest, or nine above normal.

With relatively mild temperatures in most major markets, weather bulls will have to look to tropical developments to lift prices, but that dynamic is offering little hope.

“As the storm influence gradually decreases during the next six weeks, the likelihood that overcrowding of storage facilities will be increasing,” said Jim Ritterbusch of Ritterbusch and Associates. He said that the implications for the spot market are likely to be dire, and suggests that “a sub-$4.00 cash price should not be ruled out during the coming weeks. Such weakness in the spot market would “provide a major drag on the front of the spread curve.”

Category 2 Hurricane Gordon is forecast to pass near the Azores and Category 3 Hurricane Helene is anticipated to move to the east of Bermuda, according to AccuWeather.

While some forecasters are calling for a warm winter based on El Nino (see Daily GPI, Sept. 14), others are looking for a little colder than normal weather in the Northeast. AccuWeather.com said Tuesday in its preliminary winter outlook that temperatures in the Northeast will start out warmer than normal, but will shift to colder weather during the final two months of winter, resulting in “slightly below normal temperatures for the three-month period” (see related story). The forecasting firm noted that northeastern consumers will need “more heating oil or natural gas than they did during last year’s exceptionally mild winter.”

©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.