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NatGas Cash Eases, But Futures 'Too Late to Sell, Too Early to Buy'

In Monday's trading physical natural gas, on average, managed to carve out a modest gain, even as futures cascaded lower.

Tuesday saw the physical market unable to resist the siren call of still-sinking futures, and even Northeast points expected to see below-normal cold were not exempt. The NGI National Spot Gas Average dropped 6 cents to $2.51, and futures continued their trek lower. At the close November had dropped another 5.7 cents to $2.774 and December was off a stout 17.0 cents to $3.149. December crude oil shed 56 cents to $49.96/bbl.

Futures traders are mulling spots to enter the long side of the market.

"When we were up at $3.36 on Oct. 14, the daily RSI [Relative Strength Indicator] was at 80 and it was a question of too much, too soon," said a California broker.

"Now the RSI is at 24 and you start looking for your buy zone going into winter as November comes off the board. The market anticipated some effect off the big hurricane [Matthew] and it didn't go left at all. When you saw $3.36 I wish I had the fortitude to sell it, but my clients don't sell, they just buy.

"I know the utilities did not buy into this run so they are probably saying 'Let's start looking for some value here on the curve.' That's probably what will happen now.

"When it got up to $3.36, I started moving my numbers around and at that point $2.76 was my support. With expiration coming up on Thursday, you probably wait a little bit [to buy] into that window and wait to see if any of that cold weather in the Northeast drifts down. Here's the first line of support at 24.83 RSI at $2.76 even.

"Each time the RSIs get to the lower 20s you get your bounces."

Other traders aren't quite ready to buy. "[W]e feel that the magnitude of the recent selloff will be increasing the market’s sensitivity to the first shift toward below normal trends in the six- to 14-day weather views," said Jim Ritterbusch of Ritterbusch and Associates in closing comments. "Looking ahead to Thursday’s weekly EIA report, we don’t expect any major deviations from average ideas at this stage of the shoulder period.

"And from a technical perspective, we still feel that it premature to buy this market but too late to sell it. From here, we will look for some long term support to hold at about the 3.05 [December] area per nearby futures before considering long winter-short spring bull spreads prior to advising a more aggressive bullish stance."

Analysts are looking for physical demand to be supported. "Lower 48 demand should be supported early in the week by cold in the Northeast and some cooling loads in Texas and the Desert Southwest, but will then retreat with mild temperatures blanketing the country by midweek," analysts said.

Genscape meteorological forecasts have New England and Appalachia population-weighted heating degree days (HDD) getting as high as nine HDDs above normal by Wednesday, then backing off for the remainder of the week.

"Those forecast temps push our New England demand forecast to a peak of 2.78 Bcf/d by Wednesday, then it falls to a low of 2.05 by Saturday. Appalachia follows a similar curve, topping out at 12.78 Bcf/d on Wednesday and hitting a low of 7.91 Bcf/d by Saturday. Midwest temperatures are forecast to be at to slightly warmer than seasonal norms this week. While this holds our Midwest demand forecast fairly flat, we are watching for potential demand destruction from forecast heavy rains and possibly flooding in the upper Midwest states.

"Cooling loads may kick in along the Mid-Atlantic and Southeast markets as temps are forecast in the cooling degree day (CDD) range for most of the week. Similarly, Texas and Desert Southwest regional forecasts show CDDs in double-digits for the week."

In physical market trading quotes in the Northeast tumbled. Gas at the Algonquin Citygate fell 69 cents to $3.09, and deliveries to Iroquois, Waddington shed 27 cents to $2.89. Gas on Tenn Zone 6 200L gave up 62 cents to $3.00.

Other market centers were more resilient although were unable to stay out of the loss column. Gas at the Chicago Citygate was down a penny to $2.78, and deliveries to the Henry Hub dropped 8 cents to $2.67. Gas on El Paso Permian was quoted 5 cents lower at $2.54, and packages at the PG&E Citygate were down 5 cents to $3.08.

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