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Futures Finish Week Above $8 on Cold Weather Concerns

After staging a retreat Thursday on the Energy Information Administration's 5 Bcf injection report for the week ended Nov. 10, December natural gas futures rebounded Friday on reports of some colder weather coming into the U.S. After breaking above the psychological $8 level to put in a $8.250 high on the New York Mercantile Exchange (Nymex), the prompt month ended up settling at $8.179, up 42.4 cents on the day and 38.5 cents higher than the previous week's close.

Nymex's initial public offering (IPO) stole a little bit of the spotlight from the natural gas futures increase Friday as shares soared to more than double its $59 IPO price, opening up 103% higher at $120 per share before climbing to a high of $152 on the New York Stock Exchange. The newly public company's share price finished the day at $132.99 (see related story). Other than the big Nymex news, traders were focused on the weather.

"An AccuWeather forecast change to colder weather for next week [Nov. 20] really spurred the market higher [at] midday when it was released," said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. "We then had some fund buying come in. We are also seeing a new phenomenon as of late in the market where the local traders love to short it. Every time it makes new highs, they have to buy it back, adding fuel to the fire. All in all, you would have to say we closed Friday on a very firm note as we were within 8 cents of the highs."

Looking at the market's near-term direction, Kennedy said it should be pointed out that despite all of the market's recent jostling, it is still within its recent trading range. "I think it really depends on what verifies on the temperatures next week [Nov. 20]," he said. "There is the possibility that a nasty storm could head up the East Coast next week, so we will have to wait and see what unfolds."

AccuWeather meteorologist Gerald Mohler said "a reinforcing shot of cold air" would arrive across the Northeast on Sunday. "This will result in some snow showers downwind of the Great Lakes and parts of the Ohio Valley. A significant accumulation is not expected, but there could be enough to make roads slick in some areas," he said. "There could be a couple of inches of snow somewhere in the central or southern Appalachians later Sunday into Sunday night."

Bears made two first downs Thursday as a government inventory report showed additions to natural gas storage, and the National Oceanic and Atmospheric Administration (NOAA) restated its earlier winter forecast for warmer than normal temperatures across a broad swath of the northern U.S. (see Daily GPI, Nov. 17).

The Energy Information Administration inventory report showed an injection of 5 Bcf, which was moderately higher than market expectations calling for a slight withdrawal. December futures plunged 36.5 cents to $7.755 Thursday.

Following Thursday's action, short-term traders were not optimistic. Once the inventory stats were released "there were a few stops that went off at $7.85 and $7.80, but after that the market held, but gave it back at the end of the day," said a New York floor trader on Thursday. "I think this market trades down to $7.25 over the next week and [then December futures] expire somewhere between $7.10 and $7.40."

NOAA said the temperature forecast for the December through January period calls for warmer than normal conditions over most of Alaska and central and northern portions of the continental U.S. "Near normal temperatures are expected for the central and eastern Gulf states and also through the south Atlantic coast," the forecaster said.

Top technicians read Thursday's activity as a market that was at a near-term top and headed lower. "Peaking has been our daily trend for every trading day since the 6th of November," Walter Zimmerman of United Energy said prior to trading Friday. He contends that the peaking warnings have been coming from seasonal cycle indicators, the RSI (Relative Strength Indicator) and the wave count. "With Thursday's big dump the candlesticks lend their voice to the bearish chorus. The ideal support for the bulls is $7.650 as the 0.618 retracement of the $7.278 to $8.260 rally. The bullish case is seriously weakened by a close below the 0.7862 at $7.485," he said in a note to clients.

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