Gas Petrospective – August 20, 2010

Natural gas prices dropped another 6.8 cents yesterday, which placed them at their lowest levels since May. Traders have started, in earnest, to discount the end of summer and the advent of shoulder months and more moderate temperatures. With subdued baseload industrial demand because of the recession, space-cooling demand has been forced to do double duty – as both baseload and incremental demand this summer. The recent steep decline in prices seems to be telling us that existing demand can no longer meet both sets of consumption requirements. The market needs help from the economy.

Prices were higher yesterday morning, shortly after this week’s EIA underground storage report had been released. It showed a build of just 27 bcf, against widely-expected (Bloomberg and Dow Jones) estimates for an average build of 31 bcf. And the year-on-year deficit increased from last week’s 158 bcf (5.03%) to 185 bcf (5.79% lower). The surplus against the five-year average for this time of year dropped from 219 bcf (7.92%) a week ago to 196 bcf (6.96%) after this week’s numbers. Four weeks ago, the year-to-year deficit was 33 bcf (1.77%), and the surplus against the five-year average was 261 (9.92%).

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