June natural gas is set to open 5 cents lower Friday morning at $4.42 as fundamentals traders see the market as range-bound and technical traders suggest a retest of Thursday's lows before moving higher. Overnight oil markets posted nominal gains.
After all the smoke cleared from Thursday's volatile trading, analysts see the market confined to a range. "The bulk of [Thursday's] trade developed within the 15 minutes subsequent to the release of the weekly EIA storage report. The 105 Bcf injection was initially viewed as bearish, with nearby futures dropping to our expected support of $4.29 with the market subsequently advancing by more than 20 cents," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday to clients.
"The reported reclassification of 8 Bcf to base gas suggested an actual increase of 97 Bcf, a number closer to our projected 95 Bcf upswing. With the injection coming in a couple of Bcf lower than average ideas, shorts ran for cover in the process of accentuating today's response to the numbers. At the end of the day, we viewed [this Thursday's] and last Thursday's response to the figures as overreactions that are forcing most of the weekly price volatility into the Thursday trade. While we still advise a small or core long holding in the deferred summer contracts in this market, we are not ruling out a revisit to our $4.29 support level.
“Although stocks are still 45% below five-year averages, the dynamic of deficit contraction remains in place and will likely be restricting additional price rallies to above the $4.60 level, especially if the short-term temperature outlooks continue to tilt bearish. In sum, we are expecting about a $4.30-4.60 trading range until another storage figure spikes volatility again next week."
Market technicians versed in Elliott Wave and retracement analysis see a compelling case that Thursday's down-move and reversal higher represents a completed market correction from the April high of $4.852 and the market is poised to move higher. Walter Zimmermann, vice president of United ICAP, in a Thursday afternoon webcast outlined how $4.221 (April 2) to $4.852 was the first leg of a larger advance. "The bullish case centers around the correction of the advance ending Thursday with the low at $4.289.
"Either natural gas bottomed today or it is about to bottom within the next day or two with a test of the prior lows. The prospects of natural gas have improved dramatically, but not enough to rule out a retest of Thursday's lows," said Zimmermann.
It could be a weak day of trading Friday in the physical markets as pipelines are requesting shippers to either maintain their nominations or keep withdrawals equal to or above nominations regardless of their imbalance situation. "Mild weather weekend in the Northeast has prompted pipelines to ask their shippers to stick to their nominations," said Genscape in a Friday morning report. "Due to the ongoing scheduled maintenance and milder weather, Tennessee is experiencing very limited flexibility in Zone 4, [and] Algonquin issued a notice requiring all delivery point operators to keep actual daily takes out of the system equal to or greater than scheduled quantities regardless of their cumulative imbalance position."
It also said TETCO "issued a notice requesting all delivery point operators in Market Area Zone M3 to keep actual daily takes out of the system equal to or greater than scheduled quantities regardless of their cumulative imbalance position."
In overnight Globex trading June crude oil rose 34 cents to $101.84/bbl and June RBOB gasoline gained fractionally to $2.9485/gal.