Natural gas futures plunged in active trading Tuesday as traders elected to extract a storm premium from the market once it was realized that tropical storm activity was not a threat to Gulf infrastructure.
Tropical Storm Chantal was located 305 miles south of Nova Scotia and expected to move to the northeast. A second system 600 miles east of the Windward Islands was not considered a threat. Analysts also cited a less-than-expected impact from forecasted warm weather. The September contract fell 30.8 cents to settle at $6.191, and the October contract dropped 29.3 cents to $6.421 in active trading on the New York Mercantile Exchange.
“The price rise of Monday assumed a tropical storm actually heading into the Gulf of Mexico and causing supply interruptions of some sort,” said Eric Wittenauer, energy analyst with AG Edwards in St. Louis. He noted that so far there hasn’t been the kind of storm development the market was looking for and “people are looking at injections reaching 3.5 Tcf by the end of the [injection] season, and those factors are pressuring natural gas contracts.”
He did offer the caveat that warm temperatures could give the market some upward momentum “if temperature levels are similar to last year where gas was withdrawn from storage, but the forecasts don’t suggest that is going to be the case.”
“Last year during trading of the September contract when the July temperatures did kick in, prices spiked up to the average where the market expected, but this year there may not be the chance. July is past and the forecasts for August going forward don’t look that good for supporting warm temperatures. Mild weather continues to weigh on the market given the storage overhang,” he noted.
During July 2006 a total of 325 cooling degree days (CDD) was tallied for the states of New York, Pennsylvania and New Jersey. The Midwest states of Ohio, Indiana, Illinois, Michigan and Wisconsin aggregated 299 CDD. Figures for July 2007 aren’t in yet, but by comparison for the week ended July 28, 53 CDD or six fewer than normal were recorded for the Mid-Atlantic states, and 46 CDD or 12 fewer than normal were observed for the Midwest states.
Wittenauer suggested that futures prices would see a $5 handle, but “how deep it goes below $6 is another question. We could see another price collapse similar to last year as long as the Atlantic remains quiet. Potentially it could go lower for winter forecasts look warm. The Independence Hub is likely to take some of the tightness out of the market, and increased LNG imports are likely to be a factor if European demand wanes.”
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