10-2-2014 Market Commentary with NG Chart

NEW YORK–Natural-gas prices broke below the $4 mark for the first time this week as expectations for a big surplus drive selling for a second-straight session.

Natural gas for November delivery is down 9 cents at $3.93 a million British thermal units on the New York Mercantile Exchange. The move is now the fifth-consecutive time since August that gas has retreated after cresting above $4/mmBtu.

Record production from the unconventional drilling boom keeps capping the market. Traders are awaiting Thursday’s weekly gas storage update from the U.S. Energy Information Administration and expecting it to show an addition 26% larger than the five-year average. Producers added 112 billion cubic feet of gas to stockpiles last week.

A four-day rally that ended Monday likely came from traders trying to find the “appropriate weather risk premium,” fearful that extreme cold could lead to a rush of demand, energy investment bank Tudor, Pickering, Holt & Co. said in a note. Last year’s historically cold winter led to price spikes above $6/mmBtu. MDA Weather Services did forecast on Tuesday a colder-than-normal winter, but one “well short” of last year’s extremes.

We’ll “need that cold weather to deliver to keep prices above $4/mcf,” Tudor said in its note.

When prices dip like this, it could be an opportunity to buy, said Frank Clements, co-owner of Meridian Energy Brokers Inc. outside New York. Some traders are likely to push the price back up with the fear of last winter still fresh in their minds, he said.

“It is early in the season for a winter rally, but I think traders don’t want to get caught not being long … and not participating in a rally that gets to $6 or $7 again,” Mr. Clements said. “That fear factor is starting to creep back into natural gas.”

Physical gas for next-day delivery at the Henry Hub in Louisiana last traded at $3.9675/mmBtu, compared with Wednesday’s range of $4.10-$4.16. Cash prices at the Transco Z6 hub in New York last traded at $1.90/mmBtu, compared with Wednesday’s range of $2.22 to $2.28.

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