Expiration

Getting a major boost from the expiration-day spike of 35.2 cents by July futures, most of the cash market was able to advance Friday. In doing so, it overcame bearish influences such as forecasts of declining temperatures in much of the East and the usual weekend dropoff in industrial load.

Riding momentum from the July contract’s bullish expiration Thursday, the August natural gas futures contract, in its first prompt-month action, broke the previous high for the up move with a $13.428 trade before a late round of short-covering forced a close of $13.198, down a nickel from Thursday’s close but 8.5 cents higher than the previous week’s finish.

The cash market used Wednesday’s expiration-day increase of 11.5 cents by June futures and moderate increases of cooling load in the South to range from flat to about 35 cents higher Thursday at most points in the Gulf Coast, Northeast and Midwest. However, mild weather in much of the West and excess supply issues resulted in sizeable price drops throughout the West and Midcontinent. Some western plunges exceeded a dollar.

Living up to the old trader adage that “anything can happen on expiration,” the April natural gas futures contract on Thursday explored both higher and lower price levels before anticlimactically going off of the board nearly unchanged from Wednesday’s close. The April contract traded between $9.385 and $9.640 before expiring at $9.578, up six-tenths of a cent from the previous day’s close. May futures had a similarly adventurous day, trading between $9.465 and $9.740 before closing at $9.687, up two-tenths of a cent from Wednesday’s close.

Deciding to go out with a bang on expiration, traders on Wednesday pushed December natural gas futures to a low of $7.180 before it closed out at $7.203, down 35.4 cents from Tuesday’s close. Even more interesting was the fact that the incoming prompt-month contract — January 2008 — dropped below $7.500 for the first time since summer 2005 to close Wednesday at $7.486, down 33.1 cents.

Most points responded to forecasts of cold fronts, diminishing cooling load in several areas and Wednesday’s expiration-day weakness of September futures by ranging from flat to down about 30 cents Thursday. The Rockies, however, continued to recover from their maintenance-related plunges in the first two days of the week by rising as much as about 70 cents.

With October futures plummeting to a daily low of $4.07 on expiration day last Wednesday while December futures remained more than $3 higher, Oklahoma City-based Chesapeake Energy decided it was a good time to announce the shut-in of a net 100 MMcf/d of production (125-150 MMcf/d gross), which represents the bulk of the third largest independent producer’s remaining unhedged production.

An expiration-day screen dive of more than 30 cents and light heating demand because of mild weather were chiefly responsible for falling prices across the board Thursday. Of course, the long-established conditions of a major storage surplus and the absence of a major hurricane threat to Gulf of Mexico production in a rapidly waning hurricane season also acted as a drag on the market.

With October futures plummeting to a daily low of $4.07 on expiration day Wednesday while December futures remained just over $7, Oklahoma City-based Chesapeake Energy decided it was a pretty good time to announce the shut-in of 125-150 MMcf/d (gross), which represents the bulk of the third largest independent producer’s remaining unhedged production.