December natural gas is seen opening 3 cents higher Tuesday morning at $4.08 as traders assess a strong technical picture along with continued supportive weather forecasts. Overnight oil markets spiraled lower.
As tempting a short sale as the market might seem following Monday's 17-cent surge, analysts are urging caution for the moment. "[Monday's] price up spike of almost 4.5% was almost entirely related to a weekend shift in the temperature expectations in the direction of significantly colder trends than had been anticipated on Friday. We feel that an improved chart picture has also been forcing speculative shorts out of the market with today's lift above the psychologically important $4 level providing the latest technical buying impetus," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday to clients.
"But while the extent and duration of the upcoming cold spell that is expected to arrive in force later this week may require some sizable adjustments in storage shifts across the month of November, end of October supply should come in much stronger than expected just a few weeks ago. Although our anticipated 3.6 Tcf level won't likely be seen until next week, Thursday's EIA report is apt to reveal a further 45-50 Bcf contraction in the deficit against year ago and five-year average supply builds.
"Overall, we feel that the improved chart picture is just as important to near-term price direction as the upcoming cold spell and with this in mind, we would caution against attempts to short this market for at least another day or two until the market's response to Thursday's EIA release offers additional pricing clues. Next chart resistance develops at about the $4.12 area but with major resistance unavailable until the August-September double top highs of about $4.25.
Short term, traders also see $4 support. "Temperatures here on the East Coast are pretty cold, we were in the 30s last night and only up to 52 or 53 today," said a New York floor trader Monday. "Midweek its looking to warm back up to the 60s, but I think we've seen the downside to this market as much as we could, and now going forward $4 is going to be a good holding point."
Forecasters see still cooler shifts in the near term. "[Tuesday's] six-10 day period forecast is colder than the previous forecast over the eastern half of the nation due in part to model trends and the day shift," said WSI Corp. in its Tuesday morning report. "Confidence in the forecast is average as medium range models are in reasonably good agreement with the overall large-scale pattern. However, there are technical differences with the timing and details of the cold.
"The risk may be to the colder side down the Rockies and into the eastern two-thirds of the nation. The West Coast may run warmer."
In overnight Globex trading December crude oil plummeted $1.76 to $77.02/bbl and December RBOB gasoline tumbled 4 cents to $2.0734/gal.