Affected by news late Thursday of damaged and missing rigs and platforms discovered in the Gulf of Mexico (see related story), natural gas futures on Friday morning headed toward, and then through the all-important psychological $5 resistance level. October futures hit a high on the day of $5.27 as of 1:16 p.m. (EDT), a 55.1 cent premium over Thursday’s settle.
The fresh bullish news hit the market harder than expected because most industry-watchers expected there to be no significant damage found. October futures settled slightly in afternoon trading, closing up 38.9 cents at $5.108.
The Minerals Management Service (MMS) reported late Thursday that as many as six rigs in the Gulf had broken free of their moorings (see Daily GPI, Sept. 17). That figure was revised Friday to five drilling rigs. All were found, but four production platforms continued missing Friday and were presumed sunk. Three Gulf pipelines also sprung leaks and Florida Gas Transmission continued to have problems on part of its system.
According to the MMS, from Monday-Thursday, the cumulative shut-in natural gas production in the Gulf was 17.7 Bcf, which is equivalent to 0.3985% of the Gulf’s yearly production of gas, which is approximately 4.45 Tcf. The cumulative shut-in oil production is 3.9 million bbl/d, which equates to 0.6473% of the Gulf’s yearly production, which is approximately 605 million barrels.
“It seems that we clearly will have some production shut-in or lost in the near term,” said a Washington, DC-based broker, “but I don’t know whether it is enough to turn the storage situation into a different story. We are very far ahead in terms of the refill schedule, so I don’t know if it is enough to alter that.”
Commenting on the October contract breaking through the $5 level, the broker said he is still not in any way a “raging bull” on the front months. If futures were to continue higher, he said the front month could get up to the $5.40 range, but only if there was further news Monday about lengthy restart delays or more serious infrastructure damage.
“The front months could obviously erode due to the fact that we are not getting any kind of weather and we have plenty of storage, but the recent action on the winter months clearly says we are not so sure about gas come winter,” he said. “What was interesting to me was the fact that the winter months had on Thursday tested down on the storage number release and rallied and closed near their highs, executing a textbook hammer/candlestick pattern. It was an extension of a new multi-month low in some of the winter months, but then the winter months rejected that.
“Obviously what happened is it sold down, the sellers are gone, then the buyers came in with ferocity and bid the winter months all of the way back up to finish with gains on the day.”
For the winter strip:
Noting that the strength in the winter months was confirmed Friday, the broker said the winter months could cycle back up into the $6.90 range, possibly even up to $7.10.
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