September natural gas is expected to open 3 cents lower Friday morning at $2.80 as traders discount the extreme storage report of Thursday and concentrate on static supply levels. Overnight oil markets retreated.
The Thursday storage report from a fundamental standpoint was big, really big. It was only the third time since storage data has been kept that a summer withdrawal has been reported. The 6 Bcf storage withdrawal at the end of the day, however, elicited only a half-cent move lower in September futures to $2.834.
"No change," said Brian LaRose, a market technician with United ICAP. "Bulls need to lift natgas over $3 to revive the up trend. Bears need to push natgas beneath the $2.625-2.591 lows to make a case for a deeper retreat. As long as natgas remains rangebound we are stuck in a holding pattern. Looking for a pop to $3.190 minimum if the bulls can get through resistance. Looking for a drop to $2.500-2.468 minimum if the bears can take out support," he said in closing comments Thursday.
The lack of market follow-through seems to have ended the patience of some market bulls. "It...appears that some long position holders are throwing in the towel following [Thursday's] lack of upside price response to what appeared to be a bullish EIA storage figure," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning report to clients. "The withdrawal of 6 Bcf...accelerated the contraction in the supply surplus against five-year averages by a whopping 60 Bcf. This dynamic of a reduction in the surplus will be furthered again next week by an additional surplus decline of as much as 30-40 Bcf that would cut the overhang to as low as 425 Bcf. While this is still a large supply excess in absolute terms, the rate of change (second derivative) is still an important bullish consideration that will be limiting downside price follow-through.
"On the flip side, we will reiterate that upside price possibilities will remain restricted by the bearish influence of a sizable storage surplus that exists amidst rising production that could emanate from this summer's upswing in the rig counts. The rise in the oil rigs now appears to be translating some leveling in shale production in upping the possibility that associated natural gas production could prove stronger than widely perceived. Unless this factor receives an offset in the form of a major hurricane event into the GOM, the output factor could begin to slow the decline in the surplus.
"Overall, this market still looks like a standoff from our perspective as both the bulls and the bears appear to possess equally strong arguments. In sum, a range bound trade is still anticipated."
The closely watched employment report from the US Labor Department revealed non-farm payrolls increased by 255,000 during July, well above the 185,000 expected by economists. The unemployment rate remained flat at 4.9%.
In overnight Globex trading September crude oil fell 24 cents to $41.69/bbl and September RBOB gasoline shed a half cent to $1.3630/gal.