Weakness

Despite high storage levels and falling gas futures prices, consultants at Energy and Environmental Analysis Inc. (EEA) are convinced that low gas production and inadequate drilling will pressure Henry Hub prices up to $5.35/MMBtu on average next year and in 2004, given normal weather. The 12-month strip of futures prices currently is about $1.50 less than that.

Under the weight of an increasingly negative technical outlook and on the heels of new forecasts suggesting moderating weather is ahead, natural gas futures continued lower Friday, as traders liquidated long positions established during the market’s recent run to $4.42.

In sympathy with lower crude oil prices and in reaction to the virtual certainty that neither Tropical Storm Dolly nor Edouard will pose a threat to production, natural gas futures continued their week-long descent Tuesday as locals and commercial traders liquidated long positions. With a gap-lower open on the daily chart, bears set the tone right from the outset. However, by 11 a.m. EDT, the selling pressure had dried up, leaving the market to chop sideways throughout the rest of the session. October finished at $3.132, up 3.2 cents from its morning low, but down 16.4 cents for the day.

Following a two-day, 25-cent price slide, natural gas futures rebounded modestly Friday as traders covered shorts ahead of the weekend and in anticipation of cooler temperatures this week. Also supportive on Friday was an up-tick in crude oil prices, which advanced 58 cents to finish at $18.03. The December natural gas contract experienced a similar bounce, gaining 8.6 cents to close at $2.637.

Growing natural gas supply, combined with weak demand, is sustaining gas-price weakness, which may in turn lead to increased pressure on exploration and production (E&P) shares, according to energy analysts, who have warned that without a major event before the next heating season — such as a hurricane in the Gulf of Mexico — natural gas prices will remain low for several months.

Growing natural gas supply, combined with weak demand, is sustaining gas-price weakness, which may in turn lead to increased pressure on exploration and production (E&P) shares, according to energy analysts, who warned this week that without a major event before the next heating season — such as a hurricane in the Gulf of Mexico — natural gas prices will remain low for several months.

Fulfilling most market watchers’ expectations, natural gas futures continued lower Monday as weakness in the early morning over-the-counter market translated into a gap lower open when the regular open-outcry session reopened at 9:30 a.m. (EDT). The September contract was the hardest hit, tumbling 16.2 cents to close at $2.544. A hefty estimated volume of 80,799 lent credence to the price move.

Unable to resist the weakness of weather fundamentals any longer, combined with facing the usual demand dropoff over a weekend, swing prices registered double-digit losses at nearly all points Friday. An Overnominations Day declaration for Saturday by Southern California Gas caused the biggest drop of about half a dollar at border-SoCal Gas.

New price movement was close to non-existent in almost the entire cash market Wednesday. Only a PG&E citygate uptick, a border-SoCalGas decline and mild Rockies softening provided variation in what was otherwise near-uniform flatness.