All the drama in the natural gas markets is on Capital Hill. Since early June, inventories have picked up and prices have plunged from $8.40 per MMBtu to around $6.50. “It’s simple. There is more than we need. There is no weather,” says Dean Hazelcorn, trader at Coquest Inc., adding that temperatures in Texas, the largest consumer of natural gas, have been 10 degrees below normal this summer. In August, he is expecting natural gas to trade down to $5.30. “The longer-term trend of this market is down. People who are playing this market to the upside are playing for fundamental reasons. They are looking for heat, they are looking for storms and we don’t have any of those things.”
Kyle M. Cooper, energy analyst at IAF Advisors says sustained cooler temperatures east of the Rocky Mountains have helped build inventories, which are on track to exceed record levels in September. Plus, after July 21, historically the hottest day of the year, temperatures gradually cool. Barring a tropical storm that takes out infrastructure, he expects gas to trade between $5.75 and $6.25 in August.
Current inventories are not just high; they are 17% higher than the five-year average. “That’s what’s weighing on the market,” says Darren Dohme, energy trader at Powerline Petroleum. He says commercials should look to buy between $6.00 and $6.20 before natural gas runs back above $7.00.
