Gas Petrospective – August 4, 2010

Natural gas prices dropped another 6.2 cents per million Btu yesterday, after having spent most of the morning in positive territory. And, it turns out that Monday’s decline came on a net decline in open interest, which suggests long liquidation or profit-taking by those who were buying last week. That works against the theory that funds are back in this market selling, although they may still be. For most of the year, renewed interest in “risk” has resulted in buying (by funds) in oil futures and selling in natural gas futures.

Yesterday’s weakness was attributed to the disappointing economic data released by Commerce and others. As we noted at the top of the report, equities sold off in the face of lower pending home sales and factory orders along with stagnant consumer spending and incomes. Dow Jones attributed lower natural gas prices to the disappointing data. On Monday, traders had reportedly been selling gas futures because we had seen five consecutive days of higher quotes in a market with plentiful inventories and high ongoing production.

Prices had rallied in the morning as some of last week’s buyers returned, and there was short-covering in the morning as Tropical Storm Colin developed from a depression in the mid-Atlantic. It does not seem likely to threaten production, but it is a reminder that August is when we are likely to find out if forecasts for a dramatic storm season are on the mark this year

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