Weakening

Weather, the weakening U.S. dollar, stronger demand and North America’s inability to attract cargoes of liquefied natural gas (LNG) in a competitive world market are all expected to exert upward pressure on natural gas prices, according to this month’s “Short-Term Energy Outlook” from the U.S. Energy Information Administration (EIA).

Even with the recent weakening in natural gas prices, the North American gas transmission and distribution (T&D) industry looks healthy for the rest of this year and into 2008; however, the credit crunch could slow down capital spending and the acquisition market, according to Moody’s Investors Service.

Natural gas dominance in the new housing market began to show signs of weakening in 2004 apparently because of high natural gas prices, according to the latest “Residential Gas Market Survey” by the American Gas Association (AGA).

Weather fundamentals are weakening a bit, but the prospect of much higher prices this winter coupled with a tight supply situation kept quotes on the rise Wednesday at nearly all points. A few flat to lower points kept the gains from extending across the board.

Modest upticks in cash prices continued to prevail Thursday, but signs of a weakening market were evident. None of the gains were greater than 7-8 cents, and more points were seeing either flatness or lower numbers. The hot weather in the South and West that had lent a modicum of support to Wednesday’s prices was waning a bit, and the 7.2-cent screen gain on Wednesday may have been the only thing averting overall softness Thursday.

Weakening weather fundamentals, the industrial load drop typical of a weekend and a mildly bearish storage report the day before combined to keep prices on the slide Friday at all points. Declines ranged from about a nickel to just over 20 cents.

Prices surprised more than a few traders Friday by staging a moderate rally in the face of weakening weather fundamentals and the industrial demand slump that accompanies a weekend period. A few scattered points were essentially flat, while increases ranged from as little as 2-3 cents to about a dime.

After grazing the tip of the Yucatan Peninsula Thursday night as it entered the Gulf of Mexico, Tropical Storm Claudette quickly forced natural gas and oil producers on Friday to begin implementing preventative measures on their Gulf platforms, including production shut-ins and employee evacuations. One forecaster warned that Western and Central Gulf Hubs could be in big trouble come Tuesday morning.

The dam burst on an already weakening cash market Friday. Following a record-high storage injection report and the screen’s plunge of just over 60 cents in response Thursday, nobody was surprised to see weekend numbers fall by anywhere from 40 cents to nearly 80 cents. Declines ranging from a little less than half a dollar to 60 cents dominated the market.