January natural gas crept higher Tuesday as medium-term weather outlooks called for an uncertain cold spell and analysts admitted difficulty discerning natural gas’ next move. At the close January had added 2.6 cents to $3.487 and February had gained 3.3 cents to $3.523. January crude oil rose 29 cents to $101.28/bbl.
“It seems like we are back to a fuzzball of [price] congestion. For the bulls the market has held key support, but for the bears they haven’t been able to make much of it [new lows posted by the December contract] and it [the subsequent move higher] looks like a dead cat bounce,” said Walter Zimmermann, vice president at United-ICAP.
“The verdict is still out. The market has rallied, but the rally off the $3.285 low [December] stopped right where it should have for a bear market correction. It was the pattern a bear market correction should have had, yet the leg down from the $3.689 high stopped right where a bull market correction should have stopped.
“The market keeps putting off being decisive. Like a card player keeping its deck close to its vest, it’s not giving anything away here. Normally when natural gas puts in a bottom, you know it. Look what happened from the $3.21 low [October 2010] and look what happened from the $2.409 low from September 2009. Those were monster moves higher. I have seen glaciers move faster than this market.
“I don’t know what to recommend other than if the market is going higher, it should start giving off much more dramatic signals, and if not, there is a real risk that it might take another major tumble. Viewed seasonally, natural gas normally rallies from Labor Day to Thanksgiving, and then it usually gets trashed from Thanksgiving into February. I don’t know how much that is going to apply now because in order to get a good seasonal dump, you need to have a good seasonal rally to precede it, but when you never had a rally, what kind of dump can you get?”
He added that another factor that was coming into play was that “on the quieter days, the intraday moves are aligning with the intraday moves in the Standard and Poor’s 500 index. For a long time natural gas has resisted falling under the spell of the financial markets. Unlike WTI, Brent, Gasoil…RBOB, which move minute by minute with the S&P 500, natural gas has resisted and been the last holdout. It’s been an energy market that responds to fundamentals, but that may be changing,” said Zimmermann.
“In longer and longer strings of price action it appears that natural gas prices are being ruled by the S&P 500. That’s something to look at, for if Europe comes out of their 35th emergency meeting in the last two years and once again disappoints the financial markets, and the S&P takes a nose dive, that may be what natural gas is waiting for here.
“It seems as though the financial markets in general, and the energy markets in general, have been holding their collective breath since this last emergency meeting got under way. I just wonder how well natural gas will be able to hold up if the world stock markets take a tumble. I think you have to add that into the mix; it’s not just supply and demand anymore.”
Forecasters are having difficulty with the 11- 15-day time horizon. Commodity Weather Group forecasts below-normal temperatures for the western half of the country, and normal temperatures for the eastern half. “Temperatures are sub-zero over a wide area of the Plains and western Midwest this morning, but like in [Monday’s] forecast, a warmer six- to 10-day is in store for much of the Midwest and East as the overnight models [show], led by the European and even the GFS operational,” said Matt Rogers, president of the firm. “By day 10, however, disagreement increases, but one theme that was common across most models overnight was cooler changes to the 11-15. The GFS operational was the most extreme example in bringing a strong cold outbreak to the Midcontinent (much below to strong below for the period). The ensembles, as is usually the case, are not nearly as extreme — in fact they show widespread normals, which continues the theme of limited confidence — but did also reflect the cooler trends.”
Analysts also see the market under further pressure from managed funds as forecasts of warmer temperatures have re-ignited speculative fervor. “Last weekend’s updates to the one- to two-week temperature views have emboldened the speculative community into establishing fresh shorts even at relative low pricing and at the start of the heavy usage cycle,” said Jim Ritterbusch of Ritterbusch and Associates. “Although temperature expectations through the rest of this week would appear about price-neutral, updates suggesting a return to above-normal trends next week across the eastern fourth of the nation are driving the bulk of the fresh selling. These expectations stretch toward the 20th of December and any further extension could easily force nearby futures lower by some 20 cents off of [Monday’s] settlement.
“Although January futures have sharply reduced their premium against Henry Hub physical pricing, we are leaving open the possibility of some spot market weakening by next week as the heavily populated metropolitan regions up and down the East Coast see a return to mild temps.”
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