Prices fell by large amounts at all points Monday, and the market carnage is expected to continue Tuesday after September futures plummeted by nearly a dollar when it became apparent that powerful Hurricane Dean is nearly certain to pass well to the south of U.S. offshore production interests. Cooling load was still strong in the South and Southwest, but it remained too moderate in the Northeast, Midwest and other parts of the West to lend much support to the cash market.
Losses ranging from about 15 cents to 75 cents or so tended to be largest in the Gulf Coast and Northeast and smallest in the Rockies.
Nobody is looking for a cash market rally anytime soon — not after Nymex traders responded to near-unanimous projections that Dean will not approach offshore U.S. operations by sending September futures down by a whopping 97 cents Monday. Most models had Dean continuing through the Bay of Campeche in the lower Gulf of Mexico after crossing Mexico’s Yucatan Peninsula Tuesday and hitting the mainland Mexico shore well to the south of the U.S. border. There was a good possibility of the hurricane reaching the most dangerous Category 5 classification (wind of 155 mph or more) before reaching the peninsula, but it will lose some strength during passage over the Yucatan. However, it will regain strength in the Bay of Campeche.
There’s an old saying, though, to “never say never.” Offshore interests shouldn’t get too complacent about Dean. Recall that as late as mid-afternoon Friday, Aug. 26, 2005 the infamous Hurricane Katrina was still expected to go ashore in the vicinity of Pensacola, FL. Then late that afternoon the National Hurricane Center suddenly shifted its projected tracking for Katrina toward southeast Louisiana (see Daily GPI, Aug. 29, 2005), and we all know what happened subsequently.
According to Minerals Management Service, it appeared that complacency wasn’t a problem. Its evacuation tally rose to 10 platforms and 24 mobile rigs Monday, along with a shut-in increase to 100 MMcf/d (see related story). But the pace of evacuation was slowing, and several interests were looking to start returning personnel to offshore locations later this week.
A bearish development for Rockies prices is that as of Wednesday Northwest will not allow interruptible injections at the Jackson Prairie storage facility going forward and has ordered holders of interruptible balances there to take their accounts to zero by Sept. 7 (see Transportation Notes).
Gas demand was quite “lackluster” in the Midcontinent, said a producer in the region. Power generation buying had been pretty strong through most of last week with high temperatures often hitting triple digits, he said, but then rains from the remnants of Tropical Storm Erin arrived and have cooled things off. The producer reported having some extra intraday supplies to sell Monday, and “it was tough” finding a buyer for them.
It’s safe to say that cash prices will keep falling Tuesday, he went on; it’s virtually impossible for cash to ignore Monday’s screen plunge of nearly a dollar.
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