January natural gas is expected to open unchanged Tuesday morning at $3.72 as traders balance weather forecasts and a weakening technical outlook amid indications of a cold incursion next week. Overnight oil markets continued to implode.
Top traders don't see the market outside of a broad trading range. "This market saw an unusually wide trading range as early buying dissipated with some spillover likely from the sharp oil price declines [Monday]," said Jim Ritterbusch of Ritterbusch and Associates. "While some of the temperature forecasts showed significant shifts during the past weekend, consensus of expectations appears to lean in favor of a shift away from recent mild patterns and toward normal tendencies next week. And while some colder than normal views are beginning to show up toward month's end, they don't yet appear sufficiently pronounced to spur a sustainable price rally.
"Furthermore, the market is being forced to focus on a couple of sharply downsized withdrawals that are accommodating a huge downshift from last year's heavy decline. In this week's data, we will be expecting a draw in the 55-58 Bcf region that would compare with last year's 150 Bcf drop in the five-year average decline of about 110 Bcf. All in all, we are on the sidelines at current levels given our expectation for a trading range of about $3.55-4.00.
Technical analysts are looking lower. "[It] very much looks like Monday's opening gap higher marked the end of a minor correction. If this is the case, fresh lows are on tap for this week," said Brian LaRose, technical analyst with United ICAP, in a note to clients. "For January natgas, that means room down to $3.402-3.305 next. This zone represents 1=5 from $4.689 and "a"="c" from $5.091. To derail the case for a round of new lows bulls need to stage a reversal and clear $4.057 before $3.585 can be broken."
Tom Saal, vice president at INTL FC Stone, in his work with Market Profile is looking for the market to test Monday's value area at $3.832 to $3.742 before moving on and "eventually" testing $3.736 to $3.876 and $4.240 to $4.154. In his view, the market is about 50 cents/MMBtu and one cold front away from the third value area.
In overnight Globex trading January crude oil fell $2.03 to $53.88/bbl. and January RBOB gasoline shed 5 cents to $1.5268/gal.