Concerns related to Hurricane Ike’s path combined with fairly strong support to push natural gas futures higher to end the week. October natural gas on Friday closed at $7.449, up 12.7 cents from Thursday but 49.4 cents lower than the previous week’s close.
“Uncertainty surrounding Ike, combined with pretty strong support at $7, likely led to the push higher Friday,” said Steve Blair, a broker with Rafferty Technical Research in New York. “At this point the National Hurricane Center’s five-day track has it going along the western coast of Florida. It is still too early to tell. Five-day tracking is shaky at best. Traders are going to watch this storm over the weekend to get a better idea of its direction. The uncertainty certainly played into the strength in futures trading.”
Blair said the other factor in the late-week rise in futures was entrenched support. “Trading on Wednesday and Thursday proved there is pretty good support right above $7,” he said. “Especially on Thursday with the 90 Bcf storage injection report, which was in line with expectations but large for this time of year. We sold off after the report’s release, likely spurred from traders who were trying to get the market below $7. It failed to penetrate, which sparked a 30-cent rally that then bled into Friday’s trade.”
“Ike the Spike,” as AccuWeather.com meteorologist John Kocet calls the storm, continues to shift course. “The storm’s winds have slowed a little bit since Thursday, but Ike remains a very dangerous hurricane with peak winds over 125 mph. Recently we adjusted our track southward, and South Florida is now the prime target,” he said. Tropical Storm “Josephine? Not to worry. That storm is way out in the Atlantic and probably won’t impact the United States.”
Blair said next week’s storage report for the week ending Sept. 5 will be interesting. “With reduced volumes coming out of the Gulf of Mexico for an entire week, who’s to say we are not going to see a very small injection…or a withdrawal for that matter,” the broker said. “A report like that could have short-term ramifications on futures values.”
Short-term traders see the market holding at $7. “It held the $7.030-7.050 area twice Wednesday and Thursday as well, and then the market picked its head up a little bit,” said a New York floor trader. “I think it has a hard time breaking below the $7 [area], and I expect that for this month the market trades between $7 and $8.”
He added that there was “length that got into this market and is buying it right at these levels. The only way you flush them out is if the market gets below $6.750. If it got that low, you might see some of those buyers exit, but I just don’t think the market gets that low.”
Other traders suggest that production shortfalls prompted by any interference from Hurricane Ike may provide at least short-term supply-driven market support. Thursday’s “hefty 90 Bcf storage increase boosted the supply surplus against average levels to around 100 Bcf while cutting the supply deficit against last year by more than 50 Bcf,” said Jim Ritterbusch of Ritterbusch and Associates. In his view these types of supply additions would enable supplies to build toward a near-record peak of 3.5 Tcf by early November, but “comparisons against year-ago and average injection paces will become more supportive if Ike and any subsequent storms continue to impede the production process,” he said in a note to clients.
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