Thursday, August 20, 2009

The Dreaded "Two Handle"

It finally happened. The near month natural gas futures price closed today at $2.94, breaking $3 for the first time since August 2002. Traders say that gas now has a "two handle." In other words, the price starts with the number two. It's bad, but not completely unexpected. The Henry Hub spot price closed at $3.02, unchanged from yesterday, but it seems likely to enter the terrible twos.

What scares traders and producers is the chart below showing working gas in underground storage. The red line is the actual gas in storage and the shaded band is the five year rolling average. The red line busted through the band a couple of months ago and is not likely to go back inside for a while. That's the unhappy sign of oversupply.

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