As we head into October, hurricane season has been a nonevent from a supply standpoint and natural gas inventories are 10% higher than the five-year average. As a result, prices have collapsed since mid August. And we can still look forward to the cyclical low. “We should still be headed lower,” says Dean Hazelcorn, trader at Coquest Inc. and the evidence is in the spreads. “You still have a dollar-plus spread in your Nov.-Dec., and that just tells you it’s a deteriorating market.” During October, he says November natural gas will trade as low as $5.40 per MMBtu, with an upside potential of $7.20. “You have to be a bear unless we have weather or service interruptions.”
Andrew W. Waldock, principle at Commodity and Derivative Advisors LLC, notes that injections are a week ahead of last year’s pace, over 3,000 billion cubic feet, and producers such as Chesapeake Energy are cutting production by as much as 6% in an effort to create a bottom to the market. “What we are setting up for is that any supply disruptions will cause spikes in December.” Until then, he expects support in the November contract to hold at $6. For a high, he picks $7.75.