Fundamentals

With prior-day futures support having disappeared and mild-weather fundamentals coming more into play, nearly all points ranged from flat to down a little more than a dime Wednesday. A small gain by El Paso-Permian was a negligible exception to the overall trend.

New bouts of harsh winter weather approaching after a brief respite, the end of a holiday weekend slump in industrial load, suspicions of a large storage withdrawal to be reported Thursday, and sharp spikes in the energy futures complex (especially among the petroleum-based products) all combined to generate large rebounds at nearly all points Tuesday.

Consultants at Global Insight predict that 3 Tcf-plus storage levels at the end of November will result in lower-than-expected prices next year, but a number of factors, including limited LNG import capacity, minimal gains in Gulf of Mexico gas production, further declines in gas imports from Canada and a growing economy, will put a floor under the market.

Another major screen dive combined with weak weather fundamentals to keep cash prices falling throughout the East Monday. The West, however, presented a mixed picture: some Rockies/Pacific Northwest points saw large losses, but the Southern California border and Southwest basins ranged from flat to up about a dime.

In concert with double-digit cash market losses, natural gas futures slipped lower Friday as a fair number of sellers waited until the last 30 minutes of trading to shed their long positions. The expiring October contract was hardest hit by the selling, dropping 11.2 cents for the session to its final resting place at $4.43.

It wasn’t for a lack of trying, but in the end there was nothing bulls could do to keep natural gas futures prices from free-falling lower Monday. The combination of mild temperature forecasts, negative technical factors, and the continuation of an unimpressive tropical storm season was enough to place bears back at the market’s helm. September futures closed at $4.630, down 24.4 cents or 5% for the session.

A continuation of extreme heat in much of the West provided some rationale for Tuesday’s small upticks in that market area, but sources were generally at a loss to explain similar moderate firmness in the East. Actually the eastern gains tended to be slightly larger, although nearly all points were limited to single-digit increases and a few were flat to barely lower.

With little change in overall weather fundamentals over the weekend, the cash market generally emulated the screen Monday and sat back to await further developments. Most points were about a nickel or less up or down from flat; larger gains and losses were few, scattered and capped at 15-20 cents or so.

Energy fundamentals have improved dramatically over the past two years, and the industry is showing renewed vigor and momentum for a long-term recovery, according to a Raymond James energy analyst.