Gas Petrospective – August 12, 2010

Natural gas prices rallied 2.9 cents per million Btu yesterday, after dropping 44 cents over the previous four sessions. During that decline, 62,300 new contracts were added, and we expect to learn tomorrow afternoon that funds were selling this market aggressively (at least into Tuesday, which will be the end of the period covered by the CFTC commitments of traders report). Producers and end-users are likely to have been buying.

Traders were buying ahead of this morning’s EIA underground storage report, which is expected to show a build of 34 bcf, according to a survey of analysts conducted by Dow Jones. The five-year average is 37.2 bcf, according to our records. This was affected by the 12 bcf decline in 2006, without which the average would have been a build of 49.5 bcf. Last year, there was a build of 63 bcf. Nevertheless, a build of 34 bcf would push storage levels nearer 3 tcf, while a build the size of last year’s would push us over that psychologically important level.

The National Hurricane Center announced that a low-pressure system in the US Gulf had been elevated to tropical storm status, but it was not seen as likely to threaten oil or gas facilities. One of the bigger factors in this market’s recent weakness has been a lack of threatening storm activity, which had been largely expected this summer.

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