November natural gas futures fell 15 cents Monday as traders wryly noted that the same strength in the petroleum markets that lifted natural gas 47.1 cents Oct. 15 was offset by weakness in the oil sector that worked to drag natural gas prices down a week later. In the short term, however, elevated petroleum prices are expected to limit the downside of natural gas futures. November natural gas fell 15 cents to settle at $6.891, and the December contract lost 19.9 cents to $7.529.
“Traders recognize that the historic differentials between natural gas and crude oil, heating oil and gasoline will only allow natural gas prices to decline so far,” said a New York broker.
He added that the difference between crude oil and natural gas (Btu basis) was at an all-time high, and “it might seem that the trade would be to buy the natural gas and sell the crude oil, but I don’t think so. It could get even wider. If crude oil would go to $90 to $92 that differential could expand further,” he said.
November crude oil expired today at $87.56/bbl, or $14.59 per MMBtu. November natural gas futures settled at $6.891/MMBtu. “Natural gas will only go down so far with the crude oil and products showing the strength they have recently. Natural gas at $6.00, is a long way away,” he said.
“I don’t see that coming until January, and that will require normal to warmer-than-normal weather unless we start looking at crude at $60. Does anyone think that is going to happen anytime soon?”
“We are at 78 degrees in New York City, and we are at a very low heating degree day [HDD] usage pattern to start the season, and at some time we will get back to a more normal pattern,” he said. That doesn’t look like it will happen anytime soon. The National Weather Service forecast below-normal accumulations of heating degree days for not only New York, but also the industrialized Midwest. New York, New Jersey and Pennsylvania are forecast to receive only 57 HDD, or 53 fewer than normal, for the week ended Oct. 27, and Ohio, Indiana, Michigan, Illinois and Wisconsin are expected to experience just 81 HDD, or 36 fewer than normal.
He added that natural gas was all part of the same energy/financial mix as crude oil and the products, but “the key is the commercial use of natural gas. If the economy starts to slow down, the commercials will use less and less and that will affect the demand for natural gas. When they soak it in at a factory, they use it big time.” He added that the falling dollar made it a lot cheaper for foreigners to buy this market around the world.
Concerns about the economy may have dissipated for the moment. After a gut-wrenching fall of 366.94 points on Friday the Dow Jones Industrial Average rose 44.95 to 13,566.97.
Others are also befuddled by the erratic linkage between petroleum and natural gas prices. “The gas market rallied sharply last Monday in sympathy with crude oil running to record highs. But as has been the pattern, on the first signs of a pullback in the complex, natural gas gives back all of its gains,” said Mike DeVooght of DEVO Capital, a Colorado-based trading and risk management firm.
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