July natural gas is set to open a penny lower Friday morning at $4.55 as traders sense an inability to take out Thursday's highs and a weak near-term technical environment. Overnight oil markets weakened.
Fundamental analysts remain firm in their near-term bullish stance. "Although [Thursday's] response to a seemingly bearish EIA storage figure was less pronounced than we expected, it did manage to bring a halt to this week's price rally," said Jim Ritterbusch of Ritterbusch and Associates. "And while the market failed to sell off as much as we desired in our attempt to establish fresh longs, we remain resolute in a bullish near-term stance.
"A limiter on [Thursday's] selling appeared to be some warm weather forecasts, especially across next week, that will likely be translating to a downsized storage injection to be issued two weeks from today. As a matter of fact, [Thursday's] build [report] likely represented the largest injection when looking across the next several months. Preliminary weather indications point toward a modest downsizing in next week's build."
Market technicians see a compelling case for near-term weakness based on what they see as a lackluster performance off Thursday's inventory report.
"It was a constructive day for the bears, but far from convincing at this point. Natural gas tested the upside and failed miserably," said Brian LaRose, technical analyst with United ICAP in a Thursday evening webcast. "Given the nature of the price action, I would much rather take a short position and work a buy-stop above $4.665. I think that is the safest play at this point given the seasonal cycle.
"If we can recoup [Thursday's] losses and take out [Thursday's] high [$4.665], then I see no reason why we can't test the previous highs around the $4.80 to 4.90 area, but clearly there is potential for further downside here."
LaRose bases much of his premise of a near-term decline on Elliott Wave analysis. He sees the price action up from the late March $4.289 low resembling a completed A,B,C bear market correction (up, down, now up) with a potential decline to a seasonal cycle low looming. "We need to be extremely concerned for when we look at the June and July contracts we can't be confident that a market bottom has been put in place."
He said that one more further push down would be consistent with the seasonal cycle pattern. "Generally speaking, we are looking for an August-September bottom before the next big run up begins. Who is to say it might not start early and that would be the bullish case here."
In its morning 20-day forecast, WeatherBELL Analytics is looking for a cool pattern. It calculates modest heating degree day requirements below last year and the 30-year average. "There is great model agreement now, which if correct, would mean our June idea is on target," said Joe Bastardi, WeatherBell meteorologist. "I, for one, am a bit concerned for if I am going to say the orbit of the MJO [Madden Julian Oscillation] into the current phases argued for the coming cooling, last night's MJO forecast...makes me concerned that it could be too cool in the longer term (Days 15-30). It better be, anyway, because it is colder in the 30-day mean than our monthly forecast. For now, the reversal to the cooler national pattern next week and beyond is well seen on all models."
In overnight Globex trading, July crude oil fell 54 cents to $103.04/bbl and July RBOB gasoline skidded two cents to $2.9775/gal.