An overnight and early morning surge in near-month natural gas futures prices Friday lost energy around 11:30 a.m., and the market gave up significant ground in the afternoon to end the day up only 7.8 cents at $7.157 after having reached a high of $7.520. Some sources attributed the afternoon sell-off to rumors that the Caribbean tropical depression might weaken. However, by 5 p.m. EDT the National Hurricane Center had already upgraded the depression to Tropical Storm Ernesto.
“When it looks like a storm is going into the Gulf this thing is going to run up, and it did. But I had one or two people say to me that they thought they heard some rumblings that the storm may be breaking up, that there may be some wind shear that is stifling its development,” said Steve Blair of Rafferty Technical Research. “But around 1 p.m. I couldn’t find any weather reports showing a change in the forecast.
“Nonetheless if a lot of people in the trade think this may not form into a major hurricane, that could start a sell-off. I did hear from one large broker that there was a fund that initiated a pretty big short position. Whether that’s true or not I don’t know. If they had some confirmation that this storm isn’t going to be that bad maybe they bit on that. If the talk is going around, that can be enough to move the market.”
Tom Saal of Commercial Brokerage said he believes that once short covering was through in the morning, the market simply lost buying strength because of the uncertainty over the storm’s development.
“I think today was dominated early by short covering ahead of expiration. This is the first of the last three days [of trading on the September contract],” Saal noted. “I think people who were buying early were people who were already short. The storm is still pretty far away. The people who were nervous today were those who were already short. If we come in here Sunday night or Monday morning and we know more than we know right now, we could see a resurgence of prices if the storm is going toward the Louisiana area.
“But I don’t think we saw that new speculative buying frenzy today,” he said. “We may have had some of that, but when they didn’t see the follow-through it started collapsing. On the charts this doesn’t look too good. But if we come in here Monday and this thing is headed into the Gulf we could be back up again.”
Despite the near-month contract’s small gain, October futures still managed a 14.1-cent increase to $7.344 with a high of $7.710, and November ended the day up 11.9 cents to $9.354. December ended at $10.634 and January, February and March are all well over $11.
As of 5 p.m. EDT, the National Hurricane Center (NHC) had upgraded Tropical Depression Five to Tropical Storm Ernesto and predicted further strengthening over the next 24 hours. The NHC said Ernesto was located 300 miles south-southeast of San Juan Puerto Rico and moving west-northwest at 16 mph. The latest forecast shows the storm becoming a hurricane after it crosses over Puerto Rico. The expected track had the hurricane passing over the western tip of Cuba, entering the Gulf of Mexico and heading in the direction of the East Texas coastline.
BP, Chevron, Apache and El Paso all reported that they were closely monitoring the storm and could begin evacuations and storm preparations at a moment’s notice over the weekend if it appears that the storm will threaten Gulf production facilities.
Meanwhile, early indications for the next weekly storage report show a slightly smaller injection than the 57 Bcf reported this week for the week ending Aug. 18, according to data from Bentek Energy’s latest U.S. Power — Gas Burn Report. The report shows about 196 Bcf of gas demand from power generation for the week ending Aug. 25, which would be 7 Bcf more than the previous week. Consultant Stephen Smith of Stephen Smith Energy Associates is predicting a 48 Bcf injection in the next weekly storage report by the Energy Information Administration. A hurricane and a smaller storage injection could give market bulls the one-two punch they’ve been seeking.
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