Storage Drops & Temperatures Begin to Rise

Inventory levels as at July 13, 2007 were 63 Bcf lower than this time last year and are fast approaching last year’s records at 2,692 Bcf. Although the market has already discounted prices on storage, there are indicators that show signs that the decline has lost its downward momentum and is nearing exhaustion. Yesterday, the wholesale price of natural gas for the August prompt month rallied and reached a high of $6.73/MMBtu settling at $6.706 which is an increase of 2.73% from the previous day’s settlement.

Both National Oceanic & Atmospheric Administration and AccuWeather.com are forecasting unusually hot weather in the Northeast and Midwest next week and the beginning of the following week which has led traders to buy back previously sold positions in anticipation of higher prices. The fund buying will continue if temperatures soar next week in the major gas-consuming regions, further bolstering prices. In addition, traders are on edge as we approach late summer which is typically the more active portion of the hurricane season. Yesterday in a note to clients, EarthSat, a private forecaster raised its prediction for named storms this season from 16 to 18.

On the supply side, we have been importing record volumes of liquefied natural gas (LNG) since April and it is estimated that July will set a new monthly record of 3.3 Bcf/day. It is also anticipated that LNG imports will begin to taper off in the coming months as buyers in Spain and parts of Asia have already begun to express interest in August and September cargoes at competitive prices. In the very short term, these market conditions provide an advantageous window for longer term natural gas procurements.