With the summer blast furnace extinguished and temperatures moderating, natural gasinventories registered the first triple-digit increase in storage levels since May. The weekly report from the energy information administration showed that natural gas inventories grew 103 billion cubic feet (bcf). The consensus injection outlook was for around 90 bcf. As you might expect, prices took the news hard and broke below $4.00 to $3.85.
With the summer ending this weekend and the outlook for a warmer-than-normal winter, prices might be expected to stay below $4.00 for the foreseeable future.
Not so fast.
Weather remains a factor in the form of the last part of the hurricane season.
The tropics have gotten wildly active.
There are three hurricanes currently on the weather map, and the window between now and October 15th is forecast to be especially active.
There is even speculation about possible Category 5 hurricane striking the Gulf of Mexico by month's end.
It's that final item that stoked prices almost as quickly back over $4.00 later in the day.
So far this season, fortunately, the upper level steering currents, jest stream, and some timely weather fronts have kept the Gulf of Mexico relatively free of storm activity.
Inventories are certainly abundant, well-above the average storage levels for the past five years, but below last year's record levels by just over five percent. The lower levels, as compared with 2009, can be attributed to this summer's record heat and concomitant increased electricity demand for cooling purposes and, of course, the lackluster industrial demand from the recessionary economic conditions that dominated last summer.
"There is even speculation about possible Category 5 hurricane striking the Gulf of Mexico by month's end."
The U.S. entered the 2009-10 winter demand season with a record amount of gas in storage: depressed economic activity, a tepid hurricane season, and a cool wet summer all combined to create a substantial overhang of gas.
You may recall last winter's epic snow falls. All that snow made the winter seem more harsh than it was. For the most part, it was a normal winter in terms of temperature. A mere normal winter, however, is all it takes for the country to consume a good deal of even record inventories of natural gas. Prices never collapsed to the levels feared, and this is due to weather-related demand metrics.
The injection reports over the next several weeks should show further substantial increases in supply, and will likely result in more downward price pressures for natural gas in the short-term. The prices levels experienced in the aftermath of the coming reports will likely represent the bottom for prices, as we head into the fall/winter heating season.
John P. Kilduff Senior Vice President Of Energy at MF Global Ltd. He's also a CNBC contributor.