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Physical Prices Slip 2 Cents; NatGas Futures Crumble

Physical natural gas for delivery Tuesday moved little on average Monday, with gains in California, the Rockies and West Texas nearly offsetting declines in the Gulf, Midcontinent, and Midwest. The NGI National Spot Gas Average fell 2 cents to $2.01.

Futures traders took a look at the market landscape and couldn't find any hint of near-term supportive weather, while futures gave up much of the storage report-inspired gains of last Thursday. At the close, December had fallen 7.1 cents to $2.300, and January was off 8.3 cents to $2.449. December crude oil skidded 42 cents to $43.87/bbl.

Traders' estimates of support and resistance weren't fazed with the day's futures drop.

 "I think you have to still look at $2.25 on the downside, and we held above that” Monday, a New York floor trader told NGI. "On the upside I think you are still looking at $2.50. Are these numbers going to be anything difficult to break through? I don't think so.

"At this point there has been nothing to push the market upwards. We haven't had any weather and up until [Monday], we have had 70-degree weather. Later in the week I think we are supposed to get down to some norms in the 30-50 degree range, which is about normal for this time of year. If we can start getting those kind of numbers weather-wise, we might start seeing some kind of move to the upside.”

With the day's price setback, it may still be too early to tell, but keying off last Thursday's 10-cent price surge and Friday's ability to at least hold on to the gains, market technicians were seeing a more positive environment and now look for prices to move higher.

In a weekly report to clients, Walter Zimmermann of United ICAP pointed to a number of technically supportive factors.

"There are now very bullish hammer bottom candles on both weekly and monthly charts, [and] there is major, bullish RSI divergence on daily, weekly, and monthly charts. There is major, bullish sentiment divergence from a world class bearish sentiment extreme, [and] key Elliott wave support held at the $1.948 low.

"The spot minus strip spread rebounded from a precisely successful test of key support. The message of the price action is we should be looking to the upside potential from here,” Zimmermann said.

He put technical resistance at $2.610 and $2.420, and support at $2.270 and $2.020.

Medium term weather forecasters are calling for a cooler South but warm Midwest. A six-to-10-day forecast issued on Monday by MDA Weather Services said the “forecast comes in significantly colder than in Friday's report in the South and East, where this period now features temperatures that are now closer to seasonal norms overall. The early part of the period will be coldest, with high pressure bringing temperatures to below-normal levels across the South.

"This adjustment comes with increased variability in the large-scale pattern as ridging builds farther northward into Greenland. Despite these changes, continued troughing over Alaska limits any extreme or sustained cold, with the Midwest remaining unseasonably warm in this period. The Midwest could also be additionally warmer based on the European models. The American model [could be] colder than forecast in the South and Mid-Atlantic."

Risk managers are building a long January position.

“We started to buy the January contract at $2.50 (light position),” said DEVO Capital President Mike DeVooght in a weekend note. “Natural gas has sold off sharply because of moderate summer temperatures and the anticipation of a warmer than normal winter because of the current El Nino. The weekly storage numbers [52 Bcf] were considered friendly when the injection came in less than expectations.

"As we look forward to the heat season, which can often be supportive to the gas market, demand expectations have been ratcheted lower because of the El Nino, [but] on a trade basis, we have been looking for an opportunity to get long the natural gas market."

DeVooght advised trading accounts and end-users to hold a long January position at $2.50 while producers are counseled to stand aside.

In the physical market, prices at major Midwest points were unruffled by a major loss of deliveries to the area. Midwestern Pipeline reported that it had cut deliveries to Joliet precipitously effective Oct. 30, beginning with the timely cycle.

The Joliet ANR delivery point capacity was decreased from 354,000 Mcf and 367,806 Dth to 0 Mcf and 0 Dth “until further notice. The receipt point capacity will remain at 354,000 Mcf and 367,806 Dth," the company said on its website.

Gas on Alliance rose 2 cents to $2.16, and deliveries to Chicago Citygate were flat at $2.17. Gas on Consumers fell a penny to $2.18, and gas on Michigan Consolidated was quoted a penny lower at $2.17.

Gas at the Moultrie County, IL interconnect with NGPL fell 4 cents to $2.05 and deliveries to the Douglas County, IL junction with Trunkline changed hands 2 cents lower at $2.05.

Prices at major delivery points varied widely. Gas at the Algonquin Citygate plunged $1.35 to $3.14, and deliveries to the Henry Hub were quoted 3 cents lower at $2.13. Gas at Opal was seen 10 cents higher at $2.15, and packages at the SoCal Citygate came in 21 cents higher at $2.51.

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