February settlement-day bears apparently went back into hibernation Tuesday as March natural gas futures broke back to the upside, soaring 80.3 cents to end the day at $7.740, and crude oil futures jumped $3/bbl.
"Recent arctic cold is doing wonders to throw the preponderance of winter bears a winter curve," said enerjay LLC broker Jay Levine.
Futures analyst Jim Ritterbusch of Ritterbusch and Associates said 90% of the gas futures spike Tuesday "appeared to related to the weather. We saw some shifts in some of the noon weather models that tended to touch off a buying frenzy. It just looks like this tenacious cold spell that we're in right now appears to be extending out toward the middle of February. Until we get some definitive evidence that a warming trend is going to develop, this market is going to keep discounting larger and larger storage withdrawals as we proceed into next month."
Ritterbusch said weather forecast for the 11- to 15-day time period on Tuesday indicated that temperatures are going to be even colder than was indicated in models released on Monday. "It doesn't take much. Natural gas also got swept up in some of the bullish spill-over from the crude oil complex. Crude was up $3/bbl and heating oil was up 9 cents/gallon. They may have been feeding off each other."
Natural gas and crude oil futures are "both sitting square against previously posted resistance -- that being $7.75 and $57, respectively," said Levine. "And I'd probably raise both of those for the Globex tonight/tomorrow (possibly using either/both as pivots if nimble) with potential counts, should this buying spree continue, to $8.50 and $60 and support sitting back to $7.50/$7.40 and either side of $55 for starters."
Ritterbusch pegs March gas futures resistance at about $7.87. "I would expect things to begin stalling out there, especially if we get some bearish petroleum stats tomorrow and a smaller than expected withdrawal in Thursday's storage figures."
Early predictions for this week's storage report from the Energy Information Administration (EIA) are for a withdrawal of 195-205 Bcf. Data from Bentek Energy indicates that storage companies have been pulling hard on inventories. For example, withdrawals on Columbia Gas and MichCon's systems have been approaching historically high levels, said Bentek's Rusty Braziel. He said gas flows at Leach, KY, on Columbia have been about one-third of normal because so much gas is being taken from storage rather than transported up from the Gulf Coast producing area. Leach is the demarcation point between the Columbia Gulf and Columbia Gas pipeline systems.
A combination of factors could be at play, including the severe cold, mounting storage withdrawal requirements (ratchets) kicking in because of the continuing storage surplus, the price of the gas in storage and current spot prices.
With the severe cold likely to extend through the weekend, next week's storage report probably will be similar to this week's report. "I'm a couple of hours west of Chicago and we were around 3 degrees last night and will probably be sub-zero by the weekend," said Ritterbusch. "This is pretty strong stuff. Next week is expected to stay cold. We've seen some pretty volatile weather this winter, but this one appears to be dug in and is showing no signs of breaking."
As a result, the following week's storage report could also present yet another massive withdrawal. This string of consecutive weeks of major storage reductions could lead to a dramatic change in fundamentals by March, according to some market analysts. Braziel said if the cold continues as predicted, storage levels by the end of the winter heating season probably will be at or below levels last year. Of course, that probably still will leave working gas above the five-year average. But it would eliminate a significant amount of the bearish pressure on the market.
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