Ample supplies of natural gas and the lack of any real demand allowed cash market points across the United States to sink on Tuesday as traders were unimpressed by the possibility of seeing the first tropical storm enter the Atlantic. While most points declined by less than a dime, some of the largest drops were seen in the Northeast, the Rockies and the West.
The decline in price averages in the face of some significant heat in a number of the country’s regions had at least a few traders scratching their heads.
“The weather out in the Midwest has actually cooled down a bit, but I understand there is a fair amount of heat in other regions of the country including the Northeast. Despite this heat, prices are not doing anything but going down,” a Midcontinent trader told NGI. “I still think we are fighting with the ample supply situation. I also think a lot of hydropower is online, which is taking some of the market away from natural gas. We’ve had a lot of rain in the Midwest, so the hydropower facilities are all healthy.”
Natural gas futures were also down on Tuesday as the September contract closed the regular session at $3.541, down 10 cents from Monday’s finish (see related story). “Futures were down on Tuesday as well, but I’m not sure whether the chicken or the egg came first,” the trader said. “I don’t know whether cash or Nymex was driving, but the one thing I can say with absolute certainty is that natural gas was weak.”
On the tropics front, weather services noted Tuesday that the tropical wave that came off of Africa over the weekend has strengthened into a tropical depression a few hundred miles southwest of the Cape Verde Islands. Forecaster say the system could develop into Tropical Storm Ana — the first named storm of the Atlantic season.
“Conditions remain favorable for the depression to gain strength because waters over this area of the Atlantic are warm and winds aloft in the area are light,” said AccuWeather.com. “This means it is likely that the depression will become the first named storm of the year over the next couple of days as it tracks over progressively warmer waters. If Tropical Depression Two does not develop into a tropical storm, perhaps the next wave coming off Africa could. It is also showing signs of a weak circulation, and it might end up being the one that gets energized. Computer models are indicating that this disturbance could eventually become a significant storm in the Atlantic.”
The forecasting firm noted that one of the systems could reach the Bahamas toward the end of next week then pose a threat to the East Coast. “Right now, this is something for the back burner,” AccuWeather.com said.
“Right now I think all of this storm talk is just chatter,” said the Midcontinent trader. “I don’t think this talk is going to make a difference in the market because we are so oversupplied. In fact, I think this storm chatter could give people an opportunity to sell.”
Looking ahead, the trader said the fall season will likely bring some changes for the market. “The real test will be coming in mid-September into October when all of the heat goes away completely,” he said. “During this period, I think there will be a lot of problems for the gas market. We’ll have an awful lot of supply with nowhere for it to go. This will surely put downward pressure on prices unless the winter starts to look a little bit arctic.”
The Energy Information Administration’s (EIA) Short-Term Energy Outlook released Tuesday was also bearish for near-term prices (see related story). The government agency projects total U.S. gas consumption will decline by 2.6% in 2009 and increase by 0.5% in 2010. However, the EIA expects total U.S. marketed natural gas production to stay flat in 2009 and decrease by 2.8% in 2010. “We expect the Henry Hub spot price to increase from an average $3.92/Mcf in 2009 to $5.48/Mcf in 2010 because of the current decline in drilling activity and projected growth in consumption next year,” the EIA concluded.
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