Expectations

Initial expectations of a rapid return of Gulf of Mexico (GOM) oil and gas production from the outages caused by hurricanes Gustav and Ike appeared to be overly optimistic by Wednesday, and both the cash and futures markets were firmer in response. And although substantial cooling load is still subpar for mid-September in most areas, some slightly premature heating load is arriving to displace it, especially in the Northeast.

Despite a Category Two hurricane currently in the Gulf of Mexico, significant draws in petroleum inventory and expectations of a smallish natural gas storage injection report Thursday morning, energy markets on Wednesday retreated. October natural gas futures dropped 14.2 cents on the day to close at $7.393.

Strong natural gas prices and increased gas output pushed EnCana Corp.’s quarterly results ahead of expectations. Key resource plays across North America, including triple-digit gains from its Deep Bossier gas play in East Texas, lifted total output by 17%.

Strong natural gas prices and increased gas output pushed EnCana Corp.’s quarterly results ahead of expectations. Key resource plays across North America, including triple-digit gains from its Deep Bossier gas play in East Texas, lifted total output by 17%.

Despite the release of a storage withdrawal that was inline with expectations, April natural gas futures bounded higher Thursday, seemingly on continued strength in the petroleum complex. April natural gas rose 21.9 cents to $10.230, and the May contract rose 22.8 cents to finish at $10.306. April crude oil rose 41 cents to $110.33 after trading as high as $111.00, another record.

Coming in well within expectations, the Energy Information Administration (EIA) reported Thursday morning that 155 Bcf was removed form underground natural gas storage for the week ended Jan. 18. Despite the current bearish landscape, rumored short-covering ahead of the expiration of February natural gas futures produced a rally. The prompt-month contract recorded a high of $7.840 before closing out the day at $7.802, up 18.1 cents from Wednesday.

With the expectations that peak demand for electricity this summer will be less than last summer’s record, PJM Interconnection, which manages the nation’s largest electricity grid spanning all or parts of 13 eastern states and the District of Columbia, said last week that power supplies in its region should be sufficient to meet consumers’ forecasted peak usage this summer.

With expectations rising for a projected natural gas storage surplus of nearly 600 Bcf (versus 10-year norms) by late April, the gas-to-resid spread should range between minus 50 cents/MMBtu to plus $1.00, implying a “likely” May Henry Hub bidweek price of $5.75-7.25/MMBtu, according to Stephen Smith Energy Associates.

With expectations rising for a projected natural gas storage surplus of nearly 600 Bcf (versus 10-year norms) by late April, the gas-to-resid spread should range between minus 50 cents/MMBtu to plus $1.00, implying a “likely” May Henry Hub bidweek price of $5.75-7.25/MMBtu, according to Stephen Smith Energy Associates.