Trading within a thin range, as a number of traders already had their sights set on the long holiday weekend, December natural gas futures on Tuesday dropped back below the psychological $8 level to record a low of $7.910 before closing at $7.988, down 3.1 cents on the day.
Attention now turns to Wednesday afternoon's natural gas storage report from the Energy Information Administration (EIA), which could just as easily show an injection as a withdrawal.
Despite the light activity due to some starting their Thanksgiving holiday early, one broker said his shop actually saw significant business during the day. "We did one of the largest transactions that we have ever done for a client, so while activity on the whole might have been light, we were moving it around on the day," the Washington, DC-based broker said. "A large end-user came in and bought [Tuesday] and we have had minor producer selling as well, so if the buying trend takes over and the end-users start to dominate the action, then that could be the fuel for the push up on this final futures run here."
Even with the recent range-bound trading, the broker said he is still firmly in the bulls camp. "Every time we end up having a down day, we come roaring right back the next day," he said. "Until we see that pattern broken, I will still maintain my bullish view. We had $9.250 out there as a possible termination point for the final fifth wave up under the Elliot Wave theory, but it might be easier to do with the January contract as prompt. Although this thing is a little bit labored in its attempts to push higher, every time it tries to break down it is met by a big wave of buying, so I think we have one more push up here."
Hedging his bets, the broker noted that if the market were to get down below $7.600, then the bullish move would likely end early.
The week's weather looks like it could give a slight edge to the bears. The National Weather Service (NWS) forecasts slightly below normal accumulations of heating degree days (HDD) for prominent energy markets. For the week ending Nov. 25, the NWS says New York, New Jersey and Pennsylvania will receive 168 HDD, or two less than normal, and the industrialized states of Ohio, Michigan, Indiana, Illinois and Wisconsin will have to endure 176 HDD, or 19 less than normal. This compares to last week's actual tally for the week ended Nov. 18 of 91 HDD for the Mid-Atlantic states listed above, or 62 below normal, and 182 HDD for the Midwest states, or seven above normal.
Market technicians also favor lower prices. "As we have seen over the past two weeks, the $8.250 level has proven to be a formidable resistance level," noted Walter Zimmerman of United Energy. He said his analysis shows the natural gas market to be peaking because of seasonal factors stronger than "the desire of the bulls to get aggressive and attempt another push to break over resistance before expiration next Tuesday."
The EIA will announce last week's storage activity a day early between noon and 12:10 p.m. EST Wednesday due to the Thanksgiving holiday. The Washington, DC-based broker said the calls for a larger withdrawal from earlier in the week have been muted somewhat now. "We are looking for an unchanged report to a 10 Bcf withdrawal," he said. "It had been a much larger withdrawal prediction on Monday, but people are tempering their expectations now."
A Reuters survey of 21 industry players is looking for a 6 Bcf withdrawal, although the survey's range of predictions runs from a 22 Bcf withdrawal to a 5 Bcf build. The ICAP derivatives auction held Tuesday afternoon showed market participants expect storage inventories to remain unchanged.
Golden, CO-based Bentek Energy is projecting net storage injections of 1 Bcf and 12 Bcf in two separate reports for the week (see related story). The company's natural gas Flow report is calling for the 1 Bcf build, which would result in 3,451 Bcf of gas in storage. That level of storage is 7.5% above the five-year average and 3.2% over the five-year high.
However, Bentek's Natural Gas Supply/Demand Balance report, which provides a daily picture of U.S. production, consumption, and imports/exports, is calling for a 12 Bcf injection.
"The wide disparity between our Flow Model-based projection of +1 Bcf and the +12 Bcf from our S/D Balance Model begs a clear, concise explanation of the difference," Bentek said. "Unfortunately the data provides no such clarity. We can say that there are three factors that may have biased the S/D Balance number to the high side: (a) potential production data inconsistencies resulting from the [Wyoming Interstate Co. pipeline] outage; (b) a possible exaggeration of power demand decline due to our sample of interstateconnected facilities; and (c) the built-in assumption made in our S/D Balance Model that last week's EIA number (+5 Bcf) is 'gospel' (this week's number is predicted by modeling the delta supply/demand compared to last week). Given these factors, the only sure conclusion we can reach is that uncertainty around the EIA number is high again this week."
The company noted that seven facilities continue to indicate storage above maximum capacity this week, while 11 facilities are between 95% and 99% of capacity.
The storage number revealed Wednesday afternoon will also be compared to the 1 Bcf build last year and the 3 Bcf withdrawal five-year average.
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