Physical natural gas took a few pages from the futures playbook Tuesday and fell hard.
Only a handful of points in the East managed to escape the selling onslaught, and most locations were deep into double-digit declines. The NGI National Spot Gas Average fell 20 cents to $3.44. New England and Mid-Atlantic prices managed to post modest gains as relatively steady next-day power prices prevailed, but no such steadying influence was at work in the futures arena.
Futures opened floor trading down a stout 26 cents, and the selling continued from there. At the close, February had jettisoned 39.7 cents to $3.327 and March was off 36.7 cents to $3.317. February crude oil also plunged falling $1.39 to $52.33/bbl.
Market technicians paint a grim picture for the likelihood of new market highs over $4. "You have done a lot of chart damage, but you will hit some support at the low of Dec. 20 at $3.242," said Elaine Levin, vice president at Powerhouse LLC, a Washington, DC-based trading and risk management firm. "Coming down under $3.25, your likelihood of a new high goes to practically nonexistent.”
From a technical perspective, there was some warning that further highs were going to be a stretch. "On the 28th when the market was just shy of $4 [$3.994], we did have some bullish divergence. Some of the momentum indicators we follow did not score new highs even though the price did [a red flag]. Oscillators we follow such as momentum and stochastics were actually higher around Dec. 8 than they were with this high," she said.
"This is a weather market, and I'm sure bulls are not happy with the forecast. If you break through $3.242, there is not a whole heck of a lot until you get psychologically to $3, but there is a gap in the charts at $2.90.
"The weather forecasts in three days can change pretty dramatically from the time we leave on Friday to the time we come back in on Tuesday, and that's really what happened."
Weather models showed a generally warmer outlook.
According to MDA Weather Services, the data changed over the extended holiday weekend. "The forecast over the holiday weekend trended in the warmer direction, particularly from the West to the Midwest; although, the East Coast likewise sees warm changes late in the period," the firm said in its Tuesday morning six- to 10-day outlook. "These adjustments are in response to a faster fading in cold as much belows in the eastern half early on give way to much aboves in the Plains and Midwest around mid-period and warmer leans in the East in the latter stages.
"By late period, the focus of troughing and associated cold are generally limited in coverage to central and western Canada and pressing into the Northwest U.S. and Northern Plains."
Traders see the sharp decline in prices as setting up a major buying opportunity. "[A]s was the case in December, this cold trend is now expected to prove brief," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients. "With this week's sharp elevation in HDDs well discounted, the market will become more focused on next week's temperature expectations that appear capable of forcing additional price downdraft.
"From a pure technical perspective, it now appears that nearby futures could easily work down to the $3.30 area prior to expected support. On such a decline, we will look to establish outright long positions depending on updated weather guidance. For, now we are suggesting bull spreads such as long April-short December 2017 on a cost average basis in today's trade."
Tom Saal, vice president at FCStone Latin America in Miami, in his work with Market Profile said to expect the market to test last week's value area at $3.805 to $3.718 before "eventually" testing $3.661 to $3.413. "Maybe" the market tests $3.181 to $3.085, he said.
In physical market trading firming power prices in the Mid-Atlantic helped provide a steady undertone to a physical market that otherwise was cascading lower. Intercontinental Exchange reported on-peak Wednesday power at the PJM West terminal rose $6.00 to $34.39/MWh although power at ISO New England's Massachusetts Hub eased $2.99 to $45.01/MWh.
Gas on Texas Eastern M-3, Delivery rose 8 cents to $3.34, and gas bound for New York City on Transco Zone 6 gained 28 cents to $3.54.
Deliveries to the Algonquin Citygate added 6 cents to $5.14, and gas on Iroquois, Waddington shed 31 cents to $4.23. Gas on Tennessee Zone 6 200 L added 37 cents to $5.77.
Major market centers were lower. Gas at the Chicago Citygate fell 8 cents to $3.55, and deliveries to the Henry Hub retreated 29 cents to $3.39. Gas on El Paso Permian changed hands 21 cents lower at $3.26 while Kern Receipts fell 35 cents to $3.37.