With Hurricane Dean continuing to recede as a potential threat to U.S. offshore production, cooling load remaining sparse outside the South and Southwest and a near-dollar plunge by September futures the day before serving as highly negative guidance, the cash market continued to fall by mostly large amounts at all points Tuesday.
Losses ranged from a couple of pennies to nearly 60 cents. As on Monday, the Gulf Coast and Northeast tended to take the biggest price hits. Most of the smallest declines were concentrated in the Rockies.
After pounding Mexico’s Yucatan Peninsula Tuesday (but largely sparing the northern-end resort cities of Cancun and Cozumel), Dean emerged on the western side into the Bay of Campeche as a weakened Category 1 hurricane (winds of 74-95 mph). It had landed in the peninsula as a maximum Category 5 storm (winds greater than 155 mph). However, Dean was expected to regain some strength over the bay’s warm waters.
U.S. producers were already in the process of bringing their offshore operations back to full staffing again, but some weren’t in any hurry. Minerals Management Service said its count of Dean-related evacuations had risen to 34 platforms and 21 mobile rigs Tuesday, while the shut-in tally was up to 140 MMcf/d of gas and 43,881 b/d of oil. Of course, most of Dean’s impact was on Mexican production. The national oil company, Petroleos Mexicanos (Pemex), said it evacuated more than 14,000 offshore workers and had shut in 2.7 million b/d of oil and 2.6 Bcf/d of gas (see related story).
Meanwhile, as a reminder that the industry has just entered the heart of the 2007 Atlantic hurricane season, The Weather Channel noted that a tropical wave was bringing “disorganized showers a few hundred miles north of the Leeward Islands. There is some potential for slow development with this system as it moves to the west.”
Unless that wave does show strong development and takes direct aim on the Gulf of Mexico, gas prices will be hard pressed to find a rallying point anytime soon. The September futures contract tacked an additional 22.3-cent drop onto Monday’s 97-cent plunge. And although the National Weather Service expects above-normal temperatures next week in the Northeast along with limited sections of the Midwest and Southeast (also in California and the inland West), most of the nation is due to see normal conditions.
It’s a good thing the hurricane went ashore in a fairly low-population area of Mexico, a Texas-based trader said. One of her company’s producer clients had raised a little stir by talking about “Felix,” she said, but that turned out to be what the next tropical storm, “which is a long way from getting started,” would be named.
A soft market is OK for her company, the trader continued. “The cheaper the gas prices, the lower our [pipeline retention] fuel charges,” she said, noting that although she markets gas on behalf of some producers, the company makes most of its money from gathering and transporting other people’s gas.
“You can’t have too much sympathy for the producers, though,” she added; they’ve had a pretty rich price environment for quite a while now. She expects cash prices to keep sinking Wednesday, noting that cooling load is light outside the southern U.S. and the screen keeps pointing downward for cash traders. For a substantive rebound, prices must wait on either the next storm or maybe the first blizzard of winter, she said.
Power generation load has been a really tough sell in the Northeast lately, said a producer who trades the region. It’s certainly not what it used to be as recently as last week, he added. At this point there is no indication of anything that would rally gas prices in sight, he said. However, Gulf Coast-Northeast basis spreads are wide enough to allow making a little money on transportation, he said.
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