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November Futures Soar Before Expiring 34.4 Cents Lower

After exploring the upside in morning trade and notching a $7.720 high, November natural gas futures collapsed in the afternoon, recording a low of $7.060 before expiring at $7.153, down 34.4 cents on the day and 8.8 cents lower for the week. December natural gas, now the front month contract, closed Friday 24 cents lower at $7.827.

"I don't know exactly why we took the course that we did in natural gas Friday," said a Washington, DC-based broker. "We had that very nice rally in the morning, but it ended up pummeling itself afterwards."

Natural gas bulls may have received a boost in morning trade from petrobulls, which received support Friday from reports of terror threats to oil facilities in Saudi Arabia and Bahrain.

"Before the session started crude jumped higher on fears pertaining to Saudi Arabia's Ras Tanura terminal, as well as a refinery in Bahrain," the broker said. "I suspect all energies were up on that because the Ras Tanura terminal is a big deal. It is the world's largest offshore oil loading facility. However, that effect seemed to wear off during the day as crude and natural gas futures sold off. At the end of the day, crude reversed the action and ran it back up to positive on the day while natural gas continued selling."

The broker said he is still bullish natural gas futures. "Using Elliot Wave theory, I would still call this a fourth wave correction in a bull move with the fifth wave higher still to come," he said. "If we had crossed the $6.820 level, then we would have something completely different going on here. All in all, I would still be bullish here for the next seven to 10 days."

Like the rest of the industry, the broker said the price direction ultimately hangs on what type of weather November and this winter brings, which according to various forecasts could be warmer or colder than normal. "The weather really is the big question," he said. "I know everyone out there attempting to forecast is doing the best job they can, but it is a pretty tough business, so do you roll your dice on that or wait and see."

Most traders agree that November's weather will be a key determinant of market direction. If that's the case, the current lack of agreement may augur continued volatility. The National Weather Service forecasts for the month of November that above normal temperatures will be clustered around a tight target centered around the states of Nebraska, Iowa, South Dakota and Minnesota. South Texas, Florida and Georgia are forecast to be below normal, and the remainder of the nation has "equal chances" for normal, above normal or below normal temperatures.

Accuweather, on the other hand, predicts that for the next 30 days a broad section of the country will see above normal temperatures. South of a broad arc extending from Northern California to northern Montana to North Carolina is expected to see higher than normal temperatures. Only Maine is expected to be below normal. The forecast may be revealing for what it does not show. The industrialized Midwest and heavily populated eastern seaboard largely fall in the normal category.

The release of Energy Information Administration inventory data Thursday gave the bulls some early encouragement as November futures posted the high on Thursday of $7.830 shortly after the 19 Bcf injection figure was reported, which was well below industry expectations that were closer to 24 Bcf. Savvy traders, however, took advantage of the momentary enthusiasm to sell.

"Prices ran up after the number came out, but soon thereafter trade and commercial accounts came in and sold. It wasn't apparent why, but the market was overbought," said a New York floor trader.

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