Natural gas futures moved little Monday as traders saw scant reason for the market to advance or decline from current levels. Strong demand from power generation and industrial use suggests little room for lower prices, but at the same time any advance would require weather conditions to be much different from what is currently forecast. January futures rose a penny to settle at $7.035 and February added 2.3 cents to $7.176.
“My sense is that we are at some kind of bottom in the natural gas market,” said a southern California gas marketer. He added that he didn’t think there was all that much more room for prices to work lower.
“No one really knows how supportive oil prices are, but it’s clear they are helpful to some extent. The demand numbers look pretty good because if you look at industrial demand and extract the weather out of the figures they are still up year over year. I don’ t think it’s surprising that prices are in the $6 to $7 range. I think power demand data suggests the same thing and shows year over year increases. On top of that the weather is a little cooler than last year. Last year was crazy with people playing in Central Park in New York…in their shorts.”
The National Weather Service confirmed the cooler temperatures. For November 2006 New York state tallied 517 heating degree days (HDD), but for November 2007 the figure was 698 HDD. Illinois recorded 655 HDD in November 2006, but 757 HDD in November 2007.
“Even though the supply side of the natural gas market looks better, the demand side of the market is strong enough to keep this market from moving much lower. I don’t see a $5 handle, but I don’t see much to propel the market higher either,” he said.
In spite of what might appear to be attractive prices from an end-user’s perspective, the marketer didn’t see any need to do any long-term hedging. “You’ve got near-term gas at barely $7, but next winter it’s $8.460, and that’s a steep premium. Until that goes away it’s hard to get excited about locking in long-term prices.”
Short-term traders see a sluggish market. “$7 just doesn’t want to go away,” said a New York floor trader. He said the market looked rangebound and “may spend the whole week between $6.800 and $7.250. Tomorrow I look for an open unchanged to 5 cents higher.”
Near-term weather forecasts show a warming trend with normal to above-normal temperatures forecast for the eastern two-thirds of the nation east of a line running from Montana to Louisiana. “Both the American and the European ensembles this morning have another low-pressure system developing in the Mississippi Valley and moving through the Northeast during the first half of the [six- to 10-day] period,” said Matt Rogers, meteorologist with MDA EarthSat.
He added that depending on the strength and track of this storm, above-normal temperatures could easily push in to the big cities of the Northeast.
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