November natural gas is expected to open a penny higher Friday morning at $3.86 as weather forecasts turn ever so slightly cooler and technicians see no reason to sell. Overnight oil markets continued to spiral lower.
Top traders for the longer term favor higher prices, but in the near term they advise caution as weather forecasts continue to be moderate.
"Although this market saw an initial upward response of about 5-6 cents to a slightly supportive EIA storage report [Thursday], the inability to hold gains suggests some further downside price risk to the $3.79 summer lows," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday. "The 105 Bcf injection was only 2-3 Bcf less than average Street expectations but furthered our projected trend for about a 1% per week reduction in the deficit against five-year average levels. The current shortfall is about 10.5%, and we expect more contraction to about 6% in about a month.
"Meanwhile, short-term temperature trends remain skewed bearish with above-normal temps expected across the entire country during the next couple of weeks. Until these trends inevitably shift back toward the cool side, downside price risk will remain and we will advise caution in approaching the long side. Nonetheless, we still feel that the next major move of some 30-35 cents, or 8-9%, is much more apt to develop on the upside rather than the downside. Looking ahead to [Friday's] trade, we will expect some price consolidation that could set the stage for a price rally by Monday if weekend updates to the temperature views shift colder. We favor probing the long side at current levels for a trading turn but would maintain close stop protection below the 3.77 level on a close-only basis."
Market technicians are not convinced that lower prices are imminent.
"[We are] still stuck in neutral territory. But as we are closer to support, that is our focus," said Brian LaRose, a technical analyst at United ICAP after the market closed Thursday. "Ideally if this retreat is corrective, natgas should be able to carve out a bottom from the $3.793-3.787-3.771 vicinity. However, [we] still peg 3.712, the 200-week moving average, as critical support. [We] see no reason to entertain a resumption of the down trend unless this level can be broken."
WSI Corp. in its Friday morning six- to 10-day outlook shows above-normal temperatures across the western half of the U.S. with much above normal temperatures in New York and New England, but it said, "[Friday's] six-10 day period forecast is a bit cooler along the East Coast but warmer over the interior West and central U.S. due to the day shift. However, temps did run a bit cooler across the north-central U.S. and warmer across the southern and eastern U.S. late in the period.
"Confidence in the forecast is average at best today due to technical and timing model differences with the progression of the pattern. The risk is to the cooler side across the East and warmer over the interior West into the Plains based on the ensembles, which depict a positive PNA- [Pacific North America] like pattern."
In overnight Globex trading November crude oil continued its death march with a drop of $1.41 to $84.36/bbl and November RBOB gasoline fell 3 cents to $2.2419/gal.