Traders Gamble on Hurricane Dennis' Path; Aug. Futures Settle at $7.472
After beginning the session up around $7.770 as Hurricane Dennis reached Category 4 status, August natural gas futures spent almost the entire regular trading session methodically winding its way lower. After notching a low of $7.420, the prompt month ended up settling at $7.472, up 7.4 cents on the day and 30.1 cents higher than the previous week's close.
Petroleum futures actually recorded substantial declines Friday, with August crude dropping $1.10 to settle at $59.63/bbl and August heating oil decreasing by 5.68 cents to close at $1.7181/gallon.
The surprise in natural gas was that prices began the day high, but retreated throughout the afternoon, despite the fact that Hurricane Dennis remained strong.
"We basically opened on our highs and drifted lower for the entire day," said Brad Florer, a broker with ICAP Energy. "There was just no buying at all to support it. The interesting part was, I think the lack of support came from the back of the curve forward. I think there was a real lack of buying in [calendar year 2006 and 2007]."
Florer noted that trading volume seemed to be fairly light Friday as traders were on vacation. "We will probably see that through this month," he said. "That is usually the story."
As for Hurricane Dennis, Florer echoed others in saying the path will make all of the difference in im pact to Gulf of Mexico production. "There's very differing reports as to where landfall is going to be made," he said. "There are still some people talking about landfall as far west as New Orleans, although I think most of the traders and the consensus seems to be that it is going to be further east. That should keep most of the big infrastructure out of harms way."
The broker noted that the strange thing Friday was that traders didn't seem to be fearing the weekend. "Heading into a weekend, you would think traders would be playing it safe on the other side because there is no escape [from their positions] until Sunday," Florer said. "The only thing I can think is that most of them must feel pretty comfortable that Dennis is going to stay east."
Commenting on Thursday's wacky trading day, which ended with August natural gas settling 29 cents lower, Florer said the apparent terrorist attacks in London really helped markets lower. "You could assign a lot of the weakness Thursday to the fact that after the attack people were looking at the potential economic slowdown globally and the big effect on energy demand," he said. "In addition, people were also probably looking at Dennis' storm path moving east."
During Thursday's information overloaded-session, natural gas bulls were treated to an Energy Information Administration (EIA) inventory report showing a smaller-than-expected storage injection for the week ended July 1. The EIA reported a build of 63 Bcf, somewhat lower than that projected by the ICAP storage options auction, which featured a consensus 68 Bcf. However, the natural gas futures market was unimpressed with the storage figure, the hurricane hype and the London bombings.
"The market fell because forecasters kept changing the course of the hurricane," said a New York floor trader. "Every time it (the forecast path of Dennis) kept banging to the right, prices fell further."
The early proliferation of tropical storms raises the question of whether this intense parade of activity is likely to continue. Hurricane Dennis has the dubious distinction of being the earliest fourth storm ever, following Arlene, Bret, and Cindy. In a statement to the Orlando Sentinel, Frank Lepore, spokesman at the National Hurricane Center west of Miami queried what significance the rash of early storms might have. "There is no precedent, so there is no way of telling," he said.
He added that there is no known relationship between the number of early storms -- or late storms -- and the frequency of storm activity for a given season. "It's an intriguing notion, but generally there is not any correlation," Lepore said.
In a normal season the first tropical storms of a hurricane season appear in the second week of July, and the first hurricanes don't threaten until mid-August.
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