MARKET WATCH: Gas prices fall in futures, spot markets

Natural gas prices tumbled in both the futures and cash spot markets Oct. 1 after the Energy Information Administration reported a larger-than-expected increase that pushed US underground gas storage to a record high of 3.589 tcf more than a month before the Nov. 1 start of the winter heating season.

Oct 2nd, 2009

Sam Fletcher
OGJ Senior Writer

HOUSTON, Oct. 2 -- Natural gas prices tumbled in both the futures and cash spot markets Oct. 1 after the Energy Information Administration reported a larger-than-expected increase that pushed US underground gas storage to a record high of 3.589 tcf more than a month before the Nov. 1 start of the winter heating season.

The amount of working gas in storage in the week ended Sept. 25 was up 491 bcf from a year ago and 481 bcf above the 5-year average (OGJ Online, Oct. 1, 2009). The previous record for gas in storage was 3.545 tcf. Total US capacity for gas storage is generally estimated at 3.9 tcf.

“Natural gas's historic run appears, for now, to have come to an end as bearish fundamentals finally caught up to the prompt-month contract. The November contract fell 7.5% yesterday, taking back some of the gains made while rallying more than 40% (from $3.50/Mcf) over the past month,” said analysts in the Houston office of Raymond James & Associates Inc. “In addition, cash prices at Henry Hub took a dive and are now trading below $3/Mcf again.”

In New Orleans, analysts at Pritchard Capital Partners LLC said, “Natural gas collapsed following two consecutive weak manufacturing data points—the Chicago Purchasing Managers Index and the Institute for Supply Management's manufacturing index releases came in below expectations—implying that industrial demand for natural gas will remain weak.”

They noted, “Prices on most natural hubs where the physical trade of natural gas takes place are below $3/Mcf. Only three northern hubs in the US are above $3/Mcf—Chicago, Ellisburg, [Pa.,] and New York.”

Pritchard Capital analysts said, “Crude held on to [Sept. 30] gains despite weaker US economic data and a stronger US dollar.” They added, “After being turned down in Nigeria, the Chinese expressed interest in investing in Tullow Oil PLC’s Uganda oil project and partnering with Devon Energy Corp. to develop Devon’s Gulf of Mexico assets. It seems that any time oil slips, the market gets a reminder that the Chinese stand ready to invest anywhere they can in order to secure future energy reserves.”

Raymond James analysts said, “Oil took its own route this time, closing slightly higher despite the broader market decline and a strengthened dollar. Could the market be taking a little more notice into the nuclear standoff in Iran?”

US President Barak Obama joined representatives from Russia, China, France, the UK, and Germany in talks with Iranian officials Oct. 1 in Geneva, where he said, “We have made it clear that we will do our part to engage the Iranian government on the basis of mutual interests and mutual respect, but our patience is not unlimited.”

Olivier Jakob at Petromatrix, Zug, Switzerland observed, “On [Sept. 30] the Iranian foreign minister made an unexplained trip to Washington, DC, (something not seen since 1979) and on [Oct. 1] the conclusion of the Geneva talks on Iranium was ‘constructive.’ The head of the International Atomic Energy Agency will travel to Iran over the weekend; it is probable that Iran will send its uranium to Russia for enrichment; more meetings will be held at the end of the month; and the date of appraisal is now somewhat moved back to January 2010. Holding an Iranian premium over the weekend is therefore not necessary and will probably not be necessary before the end of the year, and that is after the expiry of the December options.”

Jakob said, “The other geopolitical concern for the week was the expiry of the Nigerian governmental amnesty on Oct. 4. Tome Ateke, a very key leading militant, accepted the amnesty yesterday and was quickly flown by helicopter to the capital to be thanked by the president. It is never easy to read what is going on in the swamps of the Delta, but our feeling is that the fighting militants are becoming more isolated, and we would therefore also not want to hold too great of a risk premium for the upcoming expiry of the governmental amnesty. If the federal government was able to bring more stability to the Delta, then this could start to have material impact on the supply and demand of the Atlantic Basin. Saudi Arabia can easily replace today any loss of Iranian crude oil but replacing the qualities of Nigerian crude oil is a much more difficult task.”

On Oct. 2, the US Department of Labor reported nonfarm payrolls fell by a greater-than-expected 263,000 in September, the 21st consecutive month of job losses, pushing the unemployment rate to a 26-year high of 9.8%. Add in the discouraged workers who no longer are seeking jobs and those wanting full-time employment but working only part-time, and the unemployment-underemployment rate rose from 16.8% to 17% last month, the highest in the 15-year history of the data. A total 7.2 million jobs have been lost and unemployment has doubled since the recession began in December 2007.

In other news, Gazprom Marketing & Trading USA, Inc. began trading and marketing of natural gas in North America. The company has acquired physical gas supplies from counterparties at designated pipeline hubs across North America by executing a number of innovative, long-term gas swap transactions to quickly gain a substantial physical gas supply position in North America (OGJ Online, Oct. 2, 2009).

Energy prices
The November contract for benchmark US light, sweet crudes increased 21¢ to $70.82/bbl Oct. 1 on the New York Mercantile Exchange. The December contract advanced 26¢ to $71.20/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 21¢ to $70.82/bbl. The new front-month November contract for heating oil dipped 0.5¢ to $1.83/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month inched up 0.63¢ to $1.76/gal.

The November natural gas contract dropped 37.5¢ to $4.47/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 48.5¢ to $2.90/MMbtu.

In London, the November IPE contract for North Sea Brent crude was up 12¢ to $69.19/bbl. Gas oil for October gained $11 to $563/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes climbed by $2.15 to $67.70/bbl on Oct. 1.

Contact Sam Fletcher at samf@ogjonline.com.

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