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Gas Petrospective – July 9, 2010

July 9 2010, 09:32

Gas Petrospective – July 9, 2010

Nymex

Natural gas prices dropped almost 17 cents per million Btu yesterday, as traders looked ahead to more moderate temperatures in the Northeast and reacted to this week’s EIA underground storage report, which was disappointing. It showed a build of 78 bcf against estimates calling for a build of 73 bcf. Funds were selling, along with commission houses. Producers and Swap Dealers were reportedly buying on a scaled-down basis.

We find it curious that prices have been completely unable to respond to any of the bullish elements that have been available this week. It has been a fairly supportive week, and we still have the chance of a tropical depression turning into a tropical storm or hurricane in the Gulf of Mexico. If it does, it would be expected to follow a line like the one followed by Hurricane Alex, which was not a destroyer of infrastructure, but which was severe enough to force precautionary closures.
Temperatures are expected to moderate in the Northeast and along the East Coast, and the “heat wave” is officially over. Unofficially, it is expected to be in the high 80’s today, and the humidity in New York City is forecast to reach 66%, which would then give us a “skin-feel” of triple digit heat again.

With apologies to our friends and readers in Texas, those figures still make for a hot day here in the Northeast. And air conditioners have been running almost non-stop from Baltimore to Boston this week. We may not have had an especially supportive number yesterday, but we expect a more supportive one next week. The year-on-year deficit went from 27 bcf (1.00%) to 23 bcf (0.82%) while the surplus against the five-year average went from 287 bcf (11.97%) to 285 bcf (11.51%). Half a percent here and there add up.
Conclusions

Volatility Term Structure