December natural gas futures on Tuesday continued exploring lower price levels, recording a low of $7.460 before settling at $7.477, down 31 cents from Monday.

Moderating near-term weather forecasts could be to blame for the continued decrease as one natural gas broker added that price moves during this period of the season are “all about the thermometer.” Due to Nymex’s scaled-back holiday calendar (see Daily GPI, Nov. 20; Dec. 21, 2006), market participants were also preparing their shops for Globex electronic trading on Thanksgiving and Friday, with a shortened regular session of open outcry on Friday as well.

“I think the latest independent weather forecasts have warmed up things a bit for the near term so the market came off,” said Tom Saal of Commercial Brokerage Corp. in Miami. “If the forecast moves back to cold, we’ll likely run back up.”

As the market sits near the established $7.500 bottom of the recent trading range, Saal said other numbers are of more interest. “I don’t think $7.500 is all that valuable as support if the warm forecast sticks around. In my opinion, the hard support number is the November futures contract’s expiration level of $7.269. Everything above that price that is incorporated into the December contract is probably some sort of weather premium.”

A Washington, DC-based broker said she wasn’t very excited to be working on the Friday following Thanksgiving this year but noted that she sees Nymex’s point of view. “When it used to be only a local trader market, cutting back the holidays did not work,” the broker said. “Now that electronic trading is big and Nymex, which is now a publicly traded company, has to compete with IntercontinentalExchange, they are looking to do all the business they can. The locals can complain all they want, but they are doing so little business now anyway.

“Some of our brokers will be in on Friday, but taking a survey of our customer base, it looks like only a few companies are even going to be open. The office pool is whether we’ll give five or six order tickets on the day.”

Looking at the market’s current indicators, the broker said things still appear pretty weak. “Everyone looks to be convinced that we are going to be looking at lower prices because storage is full, winter cold is uncertain and Barnett Shale production out of Texas is more than expected,” she said. “We were looking out the curve at some no-cost collars for some of our producer customers. There used to be that there was this big call scale in the market, meaning if you bought a put 10 cents away, you would be selling a call 20 cents away. That is all gone. I don’t think in all of the years I have been natural gas trading that I have seen that at the start of winter because people are normally too petrified that something will hit them from left field and gas prices will go through the roof. The bulls have always been in control of the premiums in the options pit, so I think with the call scale being gone, that is quite telling. I really think it puts a bearish tint to this thing.”

The broker said she sees support at $7.380, followed by November’s expiration at $7.269 and then the high $6 area. However, despite all of the bearish influence, she said crude futures could buoy natural gas. “The only thing that is super bullish is crude, which looks like after taking a breather, it might be making another assault on $100/bbl oil. If oil gets to $100/bbl, gas once again might not be able to ignore it.”

Physical natural gas market shorts appear unwilling to commit to aggressive hedges in light of abundant supplies and forecasts of a warm winter. “So far, an upswing in usage capable of forcing a substantial storage withdrawal is not showing up in the temperature outlooks and as a consequence, selling interest from the commercial concerns is easily exceeding futures buying interest from the physical traders,” said Jim Ritterbusch of Ritterbusch and Associates.

Short-term weather forecasts call for an incursion of cold air this week from Canada, dropping as far south as Texas. But looking ahead the weather outlook is not encouraging for the bulls. The National Weather Service (NWS) reported a below-normal accumulation of heating degree days (HDD) for the week ended Nov. 24. The NWS forecasts 155 HDD for New York, New Jersey and Pennsylvania, or 12 fewer than normal, and 160 HDD for Ohio, Indiana, Michigan, Illinois and Wisconsin, or 32 fewer than normal.

Traders suggest that prices may languish in a broad trading range. “We would reiterate that this market is showing little change from price levels that existed in recent months and that this choppy, sideways price action may well be sustained into year’s end,” said Ritterbusch.

Turning attention to the Energy Information Administration’s (EIA) natural gas storage report for the week ended Nov. 16, expectation range from a small withdrawal to a small injection. Due to the Thanksgiving holiday, the report is being released at noon EST on Wednesday.

According to some insiders, supplies may continue to build through November, typically considered the first month of the heating season. According to a Bloomberg survey, a 2 Bcf injection is expected in this week’s inventory report. The survey resulted in a range of a 5 Bcf withdrawal to a 5 Bcf injection from the five analysts polled.

Ron Denhardt, vice president of Natural Gas Services for Strategic Energy & Economic Research Inc., is expecting a 3 Bcf injection, while Citigroup analyst Tim Evans is eyeing a 5 Bcf withdrawal. The EIA number revealed Wednesday will be compared to no change last year and the five-year average of a 7 Bcf withdrawal.

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