Fundamentals

Trading within a very slim 13-cent range, May natural gas futures on Wednesday turned in yet another uneventful session as market fundamentals remain quiet. After putting in a low of $6.770, the prompt month went on to settle at $6.808, down a dime on the day, as the market awaited fresh storage news Thursday morning.

Unable to deny negative fundamentals for the second day in a row, most of the cash market was down Wednesday. However, several points — mostly in Texas, where it is warm enough to create some air conditioning load, and in the West, where much of the remaining heating demand resides — were flat to as much as 15 cents higher.

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.

Combating Tuesday’s 54.9-cent bounce to the upside, natural gas futures traders on Wednesday took almost all of it back as fundamentals still remain overwhelmingly bearish. March natural gas closed 44.8 cents lower on Wednesday at $7.283 as traders prepared for the virtual logjam of market-impacting events scheduled in the final days of the week.

Bearish weather fundamentals and a weaker prior-day screen be damned! The cash market shrugged off its negative influences and posted gains at nearly all points Thursday. A couple of instances of flatness and an intra-Alberta decline were the exceptions to overall price firmness.

As winter approaches it may be only a matter of time before the gas market bears run out of fundamentals pointing in their favor, but right now offshore gas production shut-ins are falling steadily, Texas production is on the rise, and the warm weather and downward price pressure continues.

Cash prices finally faced up to the reality of weak fundamentals Friday with across the board plunges. Many points fell more than a dollar as moderate weather, brimming storage coffers, pipeline OFOs, prior-day screen softness and the usual weekend drop in industrial load ganged up on a market that had been mostly rising in the previous three days with little visible means of support.

A couple of western upticks notwithstanding, the overall cash market responded to persistently weak weather fundamentals, prior-day energy futures declines and correct expectations of a bearish storage injection report with price declines ranging from a little less than a nickel to about 30 cents. A considerable majority of the drops were in double digits.

The underlying fundamentals for natural gas prices — minus any weather-driven problems — remain extremely bullish, and sentiment in the gas market will improve over the coming months, according to a new report by Raymond James. Its current 2005 gas price forecast is $6.80/Mcf, with 2006 and long-term gas forecasts at $7.50/Mcf.