July natural gas futures retreated in uninspired trading Friday as traders noted that the market had recently broken out of some longstanding trading ranges and looked forward to the next week. Oil markets and equity markets suffered from a weak jobs report. At the close July had fallen 8.7 cents to $4.707 and August was down 8.2 cents to $4.739. July crude oil skidded 18 cents to $100.22/bbl.
In spite of the day's setback, traders see the market in an upward trend. "The general consensus seems to be that we are in a little bit of a bullish trend here. We've seen a little bit of a dip today, but the market is out of some ranges, which is a good sign," said a New York floor trader.
"Today was just Friday doldrums. The market has been limited to a 9-cent range. Crude oil has been moving back and forth in response to a negative jobs report, but natural gas is domestic and independent of oil markets."
Going forward, near-term weather conditions look to be the primary price drivers. The weather has actually been in the market's favor, the trader said.
"I think you might get a little bit of an upward trend here. The next objective for the market will be to take out Thursday's high [$4.859], and that is the next resistance point, but we are not all that removed from $5. That would be a big hurdle. We had a big move on Thursday and it wouldn't take much to move this market 20 or 30 cents."
The trader noted that on the New York Mercantile Exchange managed money held a greater number of short futures and options than longs and "if those guys get scared out of their shorts, that could be the 20- to 30-cent move. Next week will be a good indication of where this market is going to go."
Petroleum and equity markets were under pressure from the 8:30 a.m. EDT release of employment figures by the Labor Department. Non-farm payrolls increased by a mere 54,000, well below expectations for an increase of 170,000. In April payrolls expanded by 244,000. The unemployment rate inched higher to 9.1%, and analysts were looking for a decline to 8.9%. In early trading following the release of the report Dow Jones Industrial Average futures were down 127 points to 12,111, but equity markets managed to recover somewhat with the Dow narrowing the loss to 97 points to 12,151 at the close.
Analysts concede that present softness in the economy was punctuated by a surprisingly sharp slowdown in payroll growth, "But payrolls are still growing and the outlook for the economy points to incremental and sustainable growth," said a New York analyst.
This week's weather may work to the benefit of the bulls as heat and humidity are forecast for Midwest population centers. MDA EarthSat in its morning six- to 10-day forecast predicted above-normal temperatures south of an arc extending from New York City to northwest Illinois to southern New Mexico. Below-normal readings are anticipated west of a line from western Minnesota to southwest Arizona.
"Not a whole lot has changed in this period, with most of the differences on the composite primarily from progression. The Southwest is one of the few areas to see some change as it appears that warmth will struggle to evolve. The critical part of this period is early on over the Midwest, where another round of much-above-normal heat will move through," the forecaster said. "Chicago is forecast to peak at 90, with mid to upper 90s in St. Louis and Memphis as well. The Northeast, however, will not see as strong heat from this event as blocking impacts slowly take shape. Cooler trends will arrive late in the Midwest."
Thursday's slim 83 Bcf natural gas storage injection report caught many by surprise, and although it stretches the year-over-year deficit and the deficit to the five-year average, it is not considered significant, at least at this stage of the injection season.
"The 83 Bcf injection came in about 10-12 Bcf less than average industry ideas in the process of stretching the supply deficit further against both last year and the averages," said Jim Ritterbusch of Ritterbusch and Associates. "The year-over-year supply shortfall remains sizable at more than 10%, [but] last year's stocks were exceptionally large, and we will continue to view a relatively modest shortfall of only 42 Bcf against the five-year averages as the more salient comparison. Bottom line, this market remains amply supplied and will likely need to factor in a renewed supply surplus against average levels as the summer proceeds in view of further expected production growth."
Both bulls and bears were able to find encouragement with the weekly rig count figures from oilfield services firm Baker Hughes. For the week ended June 3 rigs drilling for gas tallied 887, a gain of six from the prior week but still well below the 947 gas rigs operating a year ago. Horizontal wells were three lower for the week at 1,051 but leagues ahead of the 798 of a year earlier. The total U.S. rig count was 1,854, up seven, and well above the 1,506 a year ago.
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