Sept 2, 2010

A lack of tropical activity in the Gulf of Mexico and weakening summer demand as autumn approaches continues to put downward pressure on gas futures prices. Based on today’s slippage and reduced demand over a long holiday weekend, October gas appears poised to test the $3.70s or lower on Friday.

Typically on an extended holiday weekend during the hurricane season, prices will show some strength due to increased tropical risk. But there’s really no tropical threats anywhere to be found that is causing any concern to the market, so it’s highly likely prices will come off in the near term.

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The Energy Information Administration reported a 54 Bcf increase to gas storage for the week ended Aug. 27, bringing total working gas in storage to 3,106 bcf. The report was in line with analysts' consensus for a 53 Bcf injection and mirrored the 54 Bcf build suggested by Bentek Energy pipeline flow data. Storage is now 6.3% behind last year, but is 5.8% above the five-year average.

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CME/Nymex October gas futures inched down 1.1¢ to close at $3.751/MMBtu. Prices opened lower today at $3.75 as traders anticipated storage data within market expectations. Immediately following the release the storage report, October gas regressed to an intraday low of $3.697 before short covering emerged as prices touched major support. In the afternoon, light volume buying sent prices rising to an intraday high of $3.844 before falling back into negative territory at the close. Part of today’s weakness was derived from the lack of tropical threats to the Gulf of Mexico, and increased chances of demand loss along the US East Coast as Hurricane Earl prepares to graze North Carolina with winds of 125 miles per hour, prompting coastal evacuations and emergency declarations.

Technical indicators for October gas futures are mixed to bearish. On the downside, key support is seen at $3.697, followed by $3.62, $3.50 and $3.41. On the upside, first level key resistance is seen between today’s intraday high of $3.844 and $3.935, followed by $4.065, $4.091 and $4.177.

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CME/Nymex October crude gained $1.11 to close at $75.02/bbl. Crude oil's early advance was reinforced late in trading after an explosion on a platform owned by Mariner Energy in the Gulf of Mexico sparked concerns that increased regulations will reduce output in the region. Oil climbed to an intraday high of $75.14 late in trading after the US Coast Guard reported the blast. According to the US Coast Guard, Vermilion Oil Rig 380, owned by Mariner Energy, is on fire after an explosion was reported at about 9:30 a.m. CDT. The Coast Guard originally reported that it was notified of the explosion by a commercial aircraft flying nearby that reported seeing smoke from the rig and people in the water. The facility, identified as an oil and natural gas production platform which was being fed by as many as seven wells, is located about 90 miles south of Vermilion Bay in 340 feet of water in South Timbalier Block 316, according to company records. A Coast Guard spokesman said there 13 people on the rig and all have been accounted for, adding that they are being taken to Terrebonne General Medical Center in Houma, Louisiana. The Coast Guard has eight rescue helicopters en route to the location and three cutters -- Decisive, Manta and Skip Jack -- along with four civilian vessels. According to its website, Mariner is among the largest lease holders on the Outer Continental Shelf with interests in about 240 federal leases and more than 30 state blocks, at year-end 2009. In deepwater, Mariner holds a working interest in more than 90 blocks. The company has participated in more than 35 deepwater projects, operating more than half of them. Also supporting oil, the US dollar continued eroding against the euro today.

Technical indicators for October crude are mixed to bullish. On the upside, key resistance is seen between today’s intraday high of $75.14 and $75.58, followed by $76.10, while $76.63 and $76.74 become the next areas of major resistance. On the downside, first level key support is seen at today's intraday low of $73.11, followed by $71.67 and $70.76, while $68.71 and $66.70 become the next lower objectives.

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Spot prices were mixed today , though notably lower in a moderating Northeastern market and much higher in a sizzling West. The Henry Hub gained 1¢ to average $3.75, while Transco Station 65 rose 1¢ to average $3.75. In the northern tier markets, Transco zone 6 New York went down 11¢ to average $4.10, while the Chicago citygates advanced 4¢ to average $3.79. In the West, cash prices at Opal, Wyoming, rose 18¢ to average $3.29, while the SoCal Citygate advanced 19¢ to average $3.69 and the PG&E Citygate gained 24¢ to average $3.93. 
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