Gas Petrospective – September 9, 2010

Natural gas prices dropped 3.8 cents per million Btu yesterday. Traders were balancing a lack of any immediate tropical threats with milder, cooler weather throughout the middle and northern tiers of states. Temperatures were cooler in Texas, where heavy rains led to flooding in Dallas-Fort Worth, Irving, Grapevine and Austin, to name a few towns and cities suffering from the aftermath of Hermine. And traders were trying to discount the latest economic news, which shows a slow economy.

The newest tropical development is “Igor.” It is now a tropical storm, but is gathering moisture and velocity as it crosses the Atlantic from the African littoral. The map above, to the left, shows a slow but steadily developing storm that may well be next week’s leading feature. Right now, though, it is something to bear in mind.

Although natural gas prices have not been following economic reports as closely as oil prices have, largely because funds prefer (vastly) the short side in this market. But, those of us who still have an abiding interest in the fundamentals know that currently high shale-gas production is as big a factor as it is because base-load industrial consumption has been and seems likely to remain depressed. Nothing that has been released by any government agency this week (or for a number of months, for that matter) suggests that this base-load demand will increase significantly over the second half of 2010. That makes existing storage levels more bearish, and it makes prices in this market infinitely more susceptible to changes in temperatures or in the forecast courses of tropical storms.

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