January natural gas finished flat Friday, but other months eased as traders don’t see any bullish factors and cite a technical trading objective 50 cents lower. January settled unchanged at $3.127 and February eased 0.3 cent to $3.174. January crude oil fell 34 cents to $93.53/bbl.

“We remain very bearish on the market for the obvious reasons that you have all this supply coming out along with the associated gas from shale oil production, and there is talk of exporting natural gas,” said a Washington, DC-based broker.

Associated gas from oil production could very well prove to be the undoing of some natural gas producers. Industry data shows that the number of rigs drilling for natural gas continued to edge lower and is well below levels of a year ago. Total wells in the U.S. and horizontal wells, however, continued to show gains. In its weekly tabulation of rotary rig activity, Baker Hughes said for the week ended Dec. 16 gas-directed rigs fell two to 818, fewer than the 941 actively drilling for gas a year ago. Total rigs at work in the U.S., however, jumped by 32 to 2,019, far beyond the 1,709 operating a year earlier. The number of horizontal rigs jumped by 33 to 1,184, well above the 954 active a year ago.

“Demand in the U.S. is generally falling as a soft economy can’t justify a higher price, but overall demand is strong for everyone [industrials and utilities] who can convert to a gas-fired unit has done so or is now doing so,” the broker said. “It becomes a question of how much of a rally can you see. Remember it was many years before natural gas prices broke over $3.

“One of the Elliott Wave counts shows that natural gas is in the final fifth wave down. This looks to be the last leg down, not necessarily forever, but before there is a consolidation of the move lower. The natural gas market may not be as attractive going forward from the standpoint of producers, but for this leg down the market is looking at a [calculated] price of $2.75 to $2.60.”

Ultimately winter weather may trump Elliott Wave and any number of technical analyses. “We don’t have that all-important ingredient of weather. It’s been awful [mild] in Washington,” the broker said.

Analysts see a continuing saga of extended mild weather accompanied by a weak pricing environment. “Mild temperature expectations across the northern half of the U.S. and along the eastern seaboard are now stretching out toward month’s end,” said Jim Ritterbusch of Ritterbusch and Associates. “This mild start to the heavy usage cycle will continue to downsize storage withdrawals within the EIA [Energy Information Administration gas storage] reports that will be seen through the balance of this month and into the first week of January.

“This security of supply will continue to restrict commercial buying interest while at the same time will be keeping the large speculators comfortable in maintaining a sizable short position. While some profit-taking from the money managers would appear likely prior to month’s end, we don’t anticipate a significant price rebound of more than 10-15 cents unless accompanied by a shift in the temperature views toward much colder patterns.”

Thursday’s EIA report showed a draw of 102 Bcf, which was greater than market expectations, but in the bigger picture it was less than the 142 Bcf five-year average and last year’s 154 Bcf.

Examination of forecast heating loads suggests that trend may continue to next week’s report. The National Weather Service (NWS) predicts that major population centers will see fewer than their normal accumulation of heating degree days (HDD) for next week’s reporting period. For the week ended Dec. 17, NWS expects New England to see 203 HDD, or 38 fewer than normal. New York, New Jersey and Pennsylvania are forecast to have 191 HDD, or 32 fewer than the norm. The Midwest from Ohio to Wisconsin is expected to have 211 HDD, or 42 fewer than normal.

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