Aided by a developing storm system in the tropics, July natural gas futures pushed higher for much of Friday’s regular session. The expiring contract touched the psychological $4 level just prior to going off the board at $3.949, up 10.5 cents from Thursday’s finish but 8.3 cents lower than the previous week’s close. The August contract gained 11.6 cents to $4.105 on Friday.
“Friday’s strong expiration can really be pinned to the first real tropical threat of the season,” said a Washington, DC-based broker. “AccuWeather.com said there is a 40% chance that the system over the Yucatan [Peninsula] could turn into a threat when everyone gets back in the office on Monday. The dime gain is solely attributable to the scare. I think the realization that the 2009 Atlantic hurricane season has really begun in earnest took control of the July contract’s termination.”
AccuWeather.com meteorologist John Kocet noted Friday that a situation has developed in the tropics over the western Caribbean in a spot where tropical storms are prone to form at this time of year. He added that the large area of convection will need to be watched through the weekend.
“The prime breeding zones for tropical storms in June are the Gulf of Mexico and the western Caribbean,” the meteorologist pointed out. “Over these very warm seas, it doesn’t take much to trigger tropical development. The other prerequisites are strong convection and a favorable upper-level wind field. The central and eastern Atlantic typically does not activate until August. The low-pressure system of concern will run into the northern Yucatan this weekend, then emerge over the southern Gulf of Mexico on Monday. In this location, the upper-level flow will be somewhat favorable for development, so we could have a tropical storm on our hands…”
Everything else is still bearish. “We have tons of gas in the ground as evidenced by the continued growth in both the year-on-year and year-on-five-year average storage surplus,” a New York trader told NGI. “Demand is still really weak — as is the economy. As for heat, sure, there is a little in some of the large gas usage regions, but the mercury would have to be pegged at the top for a considerable amount of time in order for prices to take notice.”
The trader said he expects the August contract to pick up where the July contract left off. “I see no reason August futures would choose another path here,” he said. “The fundamentals are the same except for the heightened hurricane threat that comes with moving later into the summer timeframe. Barring a significant threat, I think traders are fairly content with the recent $3.500 to $4.500 trading range.”
Citing Friday’s Baker Hughes report — which showed the number of rigs actively looking for natural gas in the United States declining again after a one-week upswing (see related story) — the trader said the market is still not worried about supply shortages anytime soon.
“Yes, Thursday’s 94 Bcf [storage] build for the week ending June 19 was considered bullish compared to expectations, but at the end of the day it was a bearish number on all other fronts,” he said. “This ‘bullish build’ was still larger than last year’s 85 Bcf injection and the five-year average addition of 84 Bcf. What’s bullish about that?”
The build took working gas in storage levels to 2,651 Bcf, which is 631 Bcf higher than last year at this time and 482 Bcf above the five-year average.
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