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Traders Cite Reversal Pattern, Yet December Called A Penny Lower

December natural gas is showing continued weakness before release of weekly storage figures, although some traders see an important market turning point in play. December is expected to open a penny lower at $2.78. Overnight oil market rose.

Overnight weather models shifted still warmer. "More warmer than cooler changes," said Commodity Weather Group President Matt Rogers in a Thursday morning report to clients. "Warmer changes continue to dominate the forecast landscape this morning. Both the American and Canadian ensembles arrived with slightly cooler changes overnight, but the more skillful European ensemble warmer changes were net stronger.

"A combination of the current very warm pattern and the tropical forcing (Madden-Julian Oscillation) indications favor warmer risks continuing through the next 12 days, at least with the warmest focus versus normal from the Midwest to Calgary. The East Coast is a battleground at times, with quick sneak attack brief coolings that mainly manage to bring them back to normal for brief interludes."

The 10:30 a.m. EDT release of storage data by the Energy Information Administration (EIA) points to an increase that will take total storage past last year's end-of-month record of 3,954 Bcf. Supplies currently stand at 3,909 Bcf, and estimates of the injections are coming in around the mid-50 Bcf mark. Last year 58 Bcf was injected and the five-year pace stands at 62 Bcf.

Analysts at Citi Futures Perspective anticipate an increase of 56 Bcf, and PIRA Energy is looking for a build of 58 Bcf. A Reuters survey of 18 traders and analysts showed an average 56 Bcf gain with a range of 44 to 60 Bcf.

Industry consultant Bentek Energy forecasts a 60 Bcf increase and said, "The smaller week-over-week [last week 73 Bcf] build was driven by higher demand, with estimates for total U.S. demand averaging about 3.1 Bcf/d higher than the previous week's average.

"Most of the increase in demand was from the heating load in the Midcon market and Northeast cell regions, which saw temperatures average 11.7 and 12 degrees Fahrenheit cooler than the previous week at 49.5 and 52.5 degrees Fahrenheit, respectively."

Students of Market Profile found great significance in Tuesday's trading in the form of a non-trend day. "On Tuesday Nov. 1, Dec'16 NG traders gave us a non-trend day inferring price stability/equilibrium, aka reversal signal," said Tom Saal, vice president at FCStone Latin America in Miami.

"It's a pretty big day because you had all this aggressive selling and it just stopped. Remember the two non-trend days near the last topping reversal pattern? [Oct. 17, and Oct. 19]. Also, Cal'17 and Cal'18 strip prices are now oversold."

Saal said, "Buyers-be-ready" and recommended winter call options.

In overnight Globex trading December crude oil rose 34 cents to $45.68/bbl and December RBOB gasoline added a penny to $1.4616/gal.

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