A couple of weeks ago we talked about the difference between the $4.14/MMbtu average price (HH) for natural gas storage injection in 2011 versus the average YTD withdrawal season price of $3.20 at the time ---$0.95 below the injection number. Now Feb futures have fallen below $2.70, or $1.44/MMbtu below the injection season value. So the implications then are even more true now – motivation for storage players to hold volumes in storage through the end of the withdrawal season, stronger possibility for 2 TCF remaining in storage at the end of the withdrawal season, etc.
So why is September trading at $3.042, or $.345 above Feb? Since most of the world now seems to believe (and rightfully so) that shale production will remain strong and the calendar tells us that winter has only a few weeks left to save the day (highly unlikely) then it must be an expectation of a “dead cat bounce”. That’s the theory that "even a dead cat will bounce if it falls from a great height” (Cat lovers, that Wikipedia’s definition, not mine).
You can see this theory in lots of articles and blogs recently (like Warm Winter Won’t Derail These Top Seasonal Commodity Trades | Breakout - Yahoo! Finance).
And it is true. Gas prices have fallen hard, and are probably primed for a bounce. But dead cats don’t change fundamentals. Until we see a meaningful decline in production or some kind of demand response, prices nearing the end of the next injection season could be very ugly (or beautiful, of course if you are a buyer.) Could we look back at this strip as a producer hedging opportunity? It’s not impossible.
