futures

With natural gas futures prices reaching six month lows last week, energy analysis firms are having to reassess their 2006 price estimates to account for the unseasonably warm weather streak that much of the U.S. has experienced this winter-to-date. Analysts at Raymond James said Monday that they were lowering their natural gas forecasts for the first half of 2006 due to “highly unfavorable weather.”

The $8 price drop in near-month natural gas futures since the $15.780 price peak in mid-December is attracting some demand back into the market. Fertilizer manufacturers Terra Industries and Agrium Inc. said last week that falling gas prices and other factors have enabled them to resume production of ammonia and upgraded products at three of their idled facilities.

The near $7.50 price drop in near-month natural gas futures since the $15.780 price peak in mid-December is attracting demand back into the market. Fertilizer manufacturer Terra Industries said Wednesday that falling gas prices and other factors have enabled it to resume production of ammonia and upgraded products at its Woodward, OK, facility.

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.

With strong ancillary support from a half dollar-plus spike in futures the day before, cash prices found heating load remaining strong enough Tuesday to record increases at virtually all points. A new record-setting screen gain of a little more than half a dollar Tuesday and little let-up in wintry weather due across most of the U.S. and Canada make it likely that physical market gains will continue Wednesday.

After surging to new, two-week highs last Wednesday, the natural gas futures market funneled lower Thursday and Friday as supportive weather forecasts were not enough to overcome the bearish force of a seemingly ample supply situation. After gapping lower 37.2 cents in overnight Access trading to open Friday at $11.570, the prompt month during the regular Friday trading session bounced within a fairly tight 26-cent range before settling at $11.414, down a whopping 52.8 cents for the day and 29.8 cents lower for the week.

Coming in well above industry expectations, the 61 Bcf natural gas injection for the week ended Nov. 4 provided further justification for the recent bearish move in natural gas futures. Despite trading as low as $11.060 on the day, December natural gas ended up settling at $11.380, down 28.9 cents on the day.

Prices continued to tumble Tuesday as bearish influences remained in play: widespread moderate weather, negative futures guidance and the growing lack of storage space to stash gas not needed for current burns.

While near-month futures spiked to an all-time high Tuesday of $14.338 and the 2006 strip stands at $11.93, two analysts predict the gas market will scale back down by about 33% next year to range between $7.15 and $8/Mcf after the hurricane recovery is complete. They said prices should remain just above $6 over the long term.