The current level of volatility in the natural gas futures has some traders wondering if all that has happened is that one form of weather-induced volatility has been traded for another form or price hyperactivity.

“I think we have traded hurricane hype for cold weather hype for the immediate term natural gas market. Cold weather patterns are pretty much intact for the next couple of weeks and until we see some moderation, it looks like prices should remain fairly stout,” suggests Jim Ritterbusch, of Ritterbusch and Associates.

“Prices backed off a little on Thursday’s storage numbers, but it doesn’t look like there will be a lot of downside price follow- through. This is still a bullish market,” he says.

“The market has been chopping around for two weeks and going nowhere, but the path of least resistance is the upside. I think prices will break out of this range on both sides. The lows of the past two weeks will be taken out first, and then start working back up with new highs in the December contract.

There are still a lot of small speculators that need to be flushed out before any sustained seasonal rally can be maintained,” Ritterbusch suggests. “The fundamental factors still look positive to me, and I think we’re in for a strong price environment this winter. There should be $5 handles in the December contract with the highs in early January.

At first glance the robust amount of gas in storage would appear to be adequate to take on a normal winter, but according to Ritterbusch a tectonic shift has taken place in the market where withdrawals will be higher than normal.

“There will be some structural shifts facilitating above normal withdrawals once the withdrawal season starts. There will be production declines and some improvement in industrial off-take showing up in the withdrawal numbers — perhaps not next month, but by December,” he predicts.

“I haven’t crunched production and demand numbers to determine what the expected April 1 inventory levels are, but they will be far less than last season’s numbers. I expect inventory levels to peak at 3.2 TCF, and then going forward I think there will be stronger withdrawals than last year 90% of the time.”

“The dynamics of the higher withdrawals should keep the market supported until after the 1st of the year, and then we’ll have to reassess the weather outlook.” After the 1st the El Nino impact may temper the weather picture.

The question is whether industrial demand, weather, or lower production is the cause of the anticipated higher draws on inventory? “Of those items the industrial demand is the toughest to back out of the numbers, but the production factor should show up more clearly than anything on the demand side.

“Weather will also be a factor, The pricing scenario I’m expecting is assuming a normal winter, but if it’s colder than normal, all bets are off and we could be making a high closer to $6 rather than $5, and it could come later in January than earlier.

Any kind of producer response to the higher prices would require a six to eight month time lag.

“I don’t see a $3.00 handle attached to the December contract. My plans are to buy from a distraught (long) speculator,” he mused.

(Republished with permission from Bill Burson, https://gastrader.net )

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