Gas Petrospective – August 13, 2010

Natural gas prices dropped three cents per million Btu yesterday, as traders reacted to this week’s EIA statistics. The underground storage figures showed a build of 37 bcf against expectations for a build of 34 bcf. Funds seem to have been selling, which we expect to learn more about in this afternoon’s CFTC commitments of traders report. Still, a little less than 2,000 new contracts were added on Wednesday, which means that 64,290 new contracts have been added in the four days through Wednesday. Most of those represent fresh selling as prices dropped on Friday, Monday and Tuesday.

Prices seem to have found a stasis point, and one can see from the Bollinger Bands drawn on the gas chart on the next page that prices hit the lower edge of the lines two days ago. A quick look at these lines shows their basic intention: To establish a mid-range line and from there determine where support or resistance, overbought and oversold pressures are likely to develop. These lines work fairly well, and they suggest that prices will want to rally or at least remain flat over the immediate term. Recent activity seems to echo the intention, although anything unusual could change that. Weather forecasts this afternoon, and more tellingly when we return on Monday, are likely to provide us with near-term direction.

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