Bearish

A warmer-than-normal April weather forecast released by WSI Corp. on Tuesday should have a bearish gas market impact because warm April temperatures will decrease the likelihood of any late-season withdrawals from storage, which already is 60% higher than the five-year average, according to consulting firm Energy Security Analysis Inc. (ESAI).

At least one source likened the cash market to a magician. Despite mostly moderate weather fundamentals, bearish storage conditions and a 24.3-cent screen drop on the previous day, it was able to pull a mostly higher-priced “rabbit” out of its hat Tuesday.

Breaking its range of the last 12 sessions, February natural gas futures opened Thursday at $8 and worked itself even lower in anticipation of yet another bearish natural gas storage withdrawal report. Following almost no reaction to the 81 Bcf pull from storage, prompt-month natural gas pushed back above $8 to settle at $8.229, down 23.1 cents from Wednesday’s close.

Unlike the previous post-weekend resumption of trading, Monday’s cash market acknowledged the bearish weather and storage fundamentals that have dominated January so far with declines across the board. In the process prices ignored the support of Friday’s screen gain of 37.5 cents, but on Tuesday they are likely to heed the negative influence of the February futures contract’s plunge of 70.6 cents Monday.

With bearish fundamentals finally in the driver’s seat of the gas market once again, futures prices have plummeted to about $9.50 from a peak of $15.78 on Dec. 13, 2005, and analysts are dropping their forecasts for 2006. Arlington, VA-based Energy and Environmental Analysis Inc. (EEA) now predicts Henry Hub prices will be back to $6.45 by April and eventually will hit $5.50 by October when all the shut-in Gulf gas production has returned.

As expected (see Daily GPI, Oct. 21), all of the cash market succumbed Friday to a bearish storage report, prior-day futures weakness, a dearth of weather-based demand and a weekend slump in industrial load. Price drops ranged from about 20 cents to more than a dollar. The biggest declines were concentrated in the Midcontinent and West.

Despite a flat futures market Wednesday and a somewhat bearish winter weather forecast by the National Oceanic and Atmospheric Administration (see related story), cash prices were generally up 10-60 cents, aside from a few flat locations in the Northeast and Gulf Coast and a massive decline at Northwest South of Green River.

Some scattered flat to moderately higher points swam against an overall strongly bearish price tide Monday. Gains ran as high as about 20 cents, but they were heavily outweighed by losses ranging from 2-3 cents to more than 60 cents. Most of the declines were in double digits, while much of the market’s modest amount of strength occurred at western points outside the Waha/Permian Basin market.

Caught between longer-term bearish fundamental market conditions and shorter-term bullish technical factors, the natural gas futures market chopped sideways to higher in relatively light trading activity Tuesday. And while neither side could claim the day as a victory, the market finished on a positive note, with the June contract ekeing out a 3-cent advance to close at $6.476.