The futures market experienced heavy expiration-day lossesyesterday, adding to price erosion that occurred Tuesday. Novemberwas particularly hard hit, slipping 13.6 cents to settle at $1.972.Weak October cash prices and follow-through selling by traders whohave elected to ignore and discount the threat of Hurricane Mitchwere reasons cited for the decline. Trading was active, with nearly150,000 contracts changing hands.
As of yesterday evening Hurricane Mitch was just 30 miles northof the coast of Honduras and drifting to the west. Maximumsustained winds of 115 were pounding northern Honduras, but furtherweakening is likely as long as the storm continues to interact withland, the National Weather Service said.
Omaha-based Strategic Weather Services says the 72-hour forecastfrom the NWS puts Mitch just off the coast of Cancun, Mexico at 20degrees North and 87 degrees West Saturday. “What it does fromthere is the big question. If it passes over the mountainousterrain in the northeast corner of the Yucatan Peninsula like somemodels suggest, further weakening is probable, but if the stormwere to re-curve more to the northeast and stay mostly over water,strengthening is possible. Due to its slow-moving nature, the stormwon’t reach the southern Gulf until next week. Depending on theclimatological conditions that exist at that time, Mitch could movein any direction-from northwest to northeast-potentially impactinganywhere from Tampico, Mexico to Miami.”
A Gulf Coast marketer said Wednesday’s price hemorrhaging wasdue, in part to a marketer willing to experience 48 hours of painin return for a month of reward. “A large seller came out anddumped a ton of October gas at the Henry Hub at any price he couldget in an effort to induce the November market lower. Henry Hub dayprices dropped from $1.84 to $1.65 and futures had little choicebut to move lower in an effort to converge.”
Another source agreed there was the incentive for some to unloadsacrificial storage gas in an attempt to goose the market lower.The market will have to wait until next week to see what effectthat may have had on weekly inventory numbers. In the meantime,AGA’s storage report will have to suffice. Released after theNovember expiry, the report estimated 36 Bcf was injected inunderground storage for the week ending Oct. 23.
The New York-based Pegasus Econometric Group views the move overthe last two days as an “expiration event” and thinks prices couldmove back to the upside now that November is off the board. “AfterMonday’s rally failed to achieve escape velocity the parachutefailed to open to limit [Tuesday’s] decline,” they wrote in theirOct. 28, Natural Gas Report.
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