MARKET WATCH: Gas futures price rebounds above $3/MMbtu

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 15 -- Natural gas prices boomeranged back above $3/MMbtu Sept. 14 on the New York Mercantile Exchange, but crude prices continued to fall even as the US dollar approached its lowest level against the euro in almost a year.

The near-month natural gas contract last week topped a 4-day rally of bargain buying with 15% price jump Sept. 10—the largest 1-day gain in almost 5 years. But that was followed by a Sept. 11 sell-off that dropped gas prices 9%. Gas futures prices then rebounded more than 11% in this week’s first trading session, but the gas spot market gave back some of its previous gain.

“The stronger part of the energy complex was natural gas, but we continue to discount this great volatility experienced during the [current] roll of the indices,” said Olivier Jakob at Petromatrix, Zug, Switzerland.

In New Orleans, analysts at Pritchard Capital Partners LLC said, “The rally in natural gas could also be partly attributed to the US Natural Gas Fund [one of the larger exchange traded funds] announcing that it will resume issuing new shares on Sept. 28, reversing its announcement on Aug. 12 that it would suspend issuing new shares. It is possible that some of the rally could be attributed to investors purchasing NYMEX natural gas contracts in anticipation of the UNG fund reentering the natural gas market.”

Jakob observed, “Natural gas futures were up close to 11%, but the UNG, which is supposed to track the natural gas futures, was higher by only 3.7% as arbitrageurs were busy pocketing the hot-air premium of the UNG by buying natural gas against selling the UNG.” Gas futures prices were still climbing in early trading Sept. 15.

As for the oil market, Jakob said, “The dollar index remains under pressure, the equities continue to grind higher, but West Texas Intermediate is losing its magical correlation to the exogenous markets as the product cracks remain a strong capping factor. The heating oil crack managed to rebound yesterday, but the gasoline crack is maintaining pressure on the 3-2-1 refinery crack and that in turn is putting as expected some pressure both on the WTI contango and on the WTI premium to [North Sea] Brent.”

The front-month October contract for Brent crude will expire at the close of trading Sept. 15. “Its contango is relative wide compared with recent months and compared with the WTI contango,” Jakob said. “At the current level of refining margins, we need to expect to see little buying interest from the Atlantic Basin refiners, which are likely to maintain units under maintenance for a longer-than-planned period.”

Pritchard Capital Partners said, “Oil for the time being seems stuck around the $70 level, and to move oil higher the market probably needs significant dollar weakness or further signs of improvement in the US economy. Improvement in the Chinese economy and other emerging market nations does not seem to be enough to move crude higher and through the $75 resistance level.”

Crude prices were “up slightly” in early trading Sept. 15, “in-line with the European and Asian equity markets’ slight gains during the trading day,” said analysts with Raymond James & Associates Inc. “The increase may be related to the Organization of Petroleum Exporting Countries’ decision to increase its global oil demand forecasts for 2009 and 2010,” they said.

OPEC revised its world economic growth forecast up by 0.2 percentage points (pp) for world economic growth to a 1.2% decline in 2009, while 2010 was revised up by 0.1 pp to 2.5% growth. These revisions were primarily the result of “an improvement in the global growth numbers for the second quarter supported by the fiscal and monetary stimulus,” OPEC officials said.

OPEC’s basket of 12 reference crudes increased $6.76/bbl to an average $71.35/bbl in August. On Sept. 14, the basket price lost $1.74 to $66.47/bbl. “Although fundamentals remain weak, in the absence of a major shift in economic sentiment, current market circumstances are likely to persist,” OPEC said.

Energy prices
The October contract for benchmark US sweet, light crudes lost 43¢ to $68.86 bbl Sept. 14 on NYMEX. The November contract dropped 35¢ to $69.37/bbl. On the US spot market, WTI at Cushing, Okla., was down 43¢ to $68.86/bbl. Heating oil for October delivery gained 1.14¢ to $1.74/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month lost 1.65¢, however, also to an average $1.74/gal.

On Sept. 14, The October natural gas contract jumped by 33.7¢ to $3.30/MMbtu on NYMEX, wiping out the loss from the previous session. On the US spot market, gas at Henry Hub, La., was down 9.5¢ to $2.98/MMbtu.

In London, the October IPE contract for North Sea Brent crude dropped 25¢ to $67.44/bbl. Gas oil for October lost $12.50 to $551.75/tonne.

Contact Sam Fletcher at [email protected].