Gas Petrospective – July  21, 2010

Natural gas prices rallied eight cents per million Btu yesterday, and that gain was larger than the last five declines in this market. That has been an emerging pattern. Prices decline more often than advance, in terms of days in positive or negative territory. But over the last two weeks, two of the bigger moves have been seen on the upside. So far, in the month of July, there have been four days higher, for a combined gain of 60.1 cents. The average increase over those four days has been 15.0 cents. There have been nine days lower, for an aggregate decline of 62.7 cents and an average over the period of 6.97 cents. The end result has almost been a wash, with a net decline of 2.6 cents, but it has taken more effort for the bears to push prices lower, requiring more than twice as many losses to accomplish fractionally more than the buyers.



Yesterday’s jump came on short-covering – which typically has an extra element of urgency in it – in front of a storm system that the National Hurricane Center says has a 60% chance of forming into a tropical cyclone. It could end up threatening oil and gas installations if it develops into a tropical storm.
It has been the one factor that has been missing in this market. We have had plenty of hot weather (it has been the hottest summer in the Northeast in roughly 20 years), but the storm activity that forecasters said would be so prevalent started and then seemingly stopped.


If this storm develops, it could be the beginning of a conveyor belt of storms. It is probably too early in the season for this particular storm (or whichever becomes the next named storm) to threaten the northern US Gulf. Nonetheless, it can change the psychology.

Volatility Term Structure

Technical Recap

Volatility Smile

***From NYMEX Settlements

Significant Activity:

1. Q10 4500 C.

2. U10 4000 C.

3. V10 6500 C. 

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