October natural gas fell hard Friday in a sympathetic move with free-falling equity and oil markets. October lost 17.8 cents to $3.872 and November retreated 17.6 cents to $3.990. October crude oil fared as poorly, losing $2.48 to $86.45/bbl.
Traders attributed the day’s free-fall in natural gas prices to factors not normally associated with gas trading. “I think today the weakness in the oil and equity markets along with the poor jobs report took natural gas prices lower,” said Kyle Cooper, principal at IAF Advisors, Houston.
The day’s weakness in financial markets got under way early with the 8:30 a.m. EDT release of a jobs report showing zero growth against expectations of an increase of 60,000 non-farm payroll positions. “The unemployment rate is unchanged at 9.1% with no payroll growth and downward revisions to prior payroll totals in what confirm a prior run of reports that mark August, the month hit by the aftermath of the debt-ceiling crisis and by S&P’s U.S. credit rating cut, as a step backward for economic recovery,” said analysts at Bloomberg. The Dow fell 253 points to 11,240 and “losses would have been worse if not for heightened expectations for new stimulus from the Federal Reserve, which meets later this month.” Gold jumped $58 to $1,887 per ounce.
Cooper also noted that Tropical Storm Lee was having a bullish impact with 1.7 Bcf/d of production off the market. The potentially demand-destroying rainfall and moisture was heading away from a parched and populous Texas and toward Louisiana. “New Orleans is forecast to get 11 inches of rain, and we aren’t likely to get any. Two days ago we had a forecast of a 50% chance of rain and that is now down to 20%.
“It’s likely that as much as 5 to 10 Bcf will be taken off the market, and that’s not a huge amount but it does tilt things in a bullish direction.”
At 5 p.m. EDT the National Hurricane Center (NHC) reported that Lee was 185 miles southwest of the mouth of the Mississippi River and was moving to the north at 2 mph. Maximum sustained winds were 45 mph.
NHC also said Katia had been reinvigorated and was back to hurricane status and moving northwest at 12 mph in the Atlantic 630 miles east of the Leeward Islands with winds of 75 mph. NHC projections show it heading to the southeast U.S. coast. A third system south of Halifax, NS, was given a 40% chance of development.
In spite of the evacuations and lost production, analysts don’t see much of a market impact from the storm. “Thus far, offshore output has been downsized minimally by less than 3%. The market may also be factoring in some cooling effects across the southern tier states as a result of the heavy rainfall that will accompany this tropical [storm],” said Jim Ritterbusch of Ritterbusch and Associates. “Despite the fact that a supply deficit against five-year averages stretched back out to 60 Bcf per [Thursday’s storage] data, this market is still pricing in the likelihood that a strong production pace will be able to accelerate injections appreciably once the shoulder period arrives.”
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