September natural gas is expected to open 4 cents higher Wednesday morning at $2.77 as traders still have to deal with oppressive heat and humidity in many sections of the country and the technical picture remains unsettled. Overnight oil markets were mixed.
Recent precipitous plunges in crude and products has short-term players seeing that as something natural gas markets will have to contend with. Although the physical substitutability of crude oil for natural gas is next to zero, an energy molecule is an energy molecule. "Crude oil settled under $40, and that is huge for the crude and products," a New York floor trader told NGI. "Successive settlements under $40 could keep natgas under $2.75."
Gas buyers in the daily market will have their hands full as the National Weather Service reports that much of the central U.S. is expected to continue baking, but it also said, "A potent upper-level disturbance tracking eastward along the U.S./Canadian border will support the development of a well-defined surface low across the Dakotas and eventually lifting northward into Canada.
"The area of the country with the greatest potential for heavy rain and flash flooding will be the four-corners region, especially the higher terrain of Arizona and New Mexico. The heat and humidity are forecast to continue unabated across much of the central and southern U.S. Heat advisories are in effect from eastern Texas to Mississippi where heat indices could easily be in the 100 to 110 degree range, perhaps even higher at times."
Tom Saal, vice president at FCStone Latin America LLC, in his work with Market Profile said to look for the market to test Tuesday's value area at $2.770 to $2.746. Following that he said to follow the Market Profile Monday/Tuesday Breakout Rule, which provides current price momentum for trading entry and exit for the week. Prices must first break either higher or lower from the initial balance at $2.876 or $2.746. He places objectives higher at $2.950 and $3.024 and lower targets are at $2.654 and $2.580.
Other traders see playing a breakout as a way to approach the market as well. "Bears need to push natgas beneath the $2.625/2.591 lows to make a case for a deeper
retreat," said Brian LaRose, technical analyst with United ICAP. "Bulls need to lift natgas over $3 to revive the up trend. As long as natgas remains range-bound we are stuck in a holding pattern.
"[We are] looking for a drop to $2.500-2.468 minimum if the bears can take out support. Looking for a pop to $3.190 minimum if the bulls can get through resistance."
In overnight Globex trading September crude oil rose 32 cents to $39.83/bbl and September RBOB gasoline shed a half cent to $1.3060/gal.