Technicals, Crude Oil Lift Futures Off Early Lows

Since notching a $2.12 low during the first week of this year, the natural gas futures market has shown a propensity to look past virtually all bearish information and focus on anything out there that is remotely bullish. Witness yesterday, when prices sank early on fizzled hurricane fears only to rebound fiercely as traders rallied natural gas in sympathy with spiking crude oil prices.

October natural gas finished up 1.7% at $5.295 while October crude was up 2.6% at $36.88.

After slipping lower in overnight Access dealings, the futures market gapped six cents lower at the open Monday as traders attempted to take the storm premium out of prices. That, however, was unsuccessful, and after reaching its daily low at $5.08 during the first hour of trading, the market chopped higher throughout the rest of the session.

"This market rallied 30 cents last week on the threat that a hurricane would impact supplies this winter in the Gulf of Mexico. The storm took a right turn but the market continued higher," said a Northeast buyer somewhat incredulously.

Gordon, which became a hurricane in the Gulf of Mexico over the weekend, affected mostly weekend-only deliveries and therefore was quickly deemed a non-factor by traders (see related story).

Looking ahead, most traders agree that the next big test for prices will be whether or not cool weather materializes early this winter in key northern gas consuming regions. While forecasters are predicting a normal winter, that could come as a bullish surprise following three winters with mostly above normal mercury readings.

In the meantime, however, traders remain bullish in the near-term. Cynthia Kase, of New Mexico-based Kase and Company, for example, looks for a split target of $5.89 and $6.28, but admits that prices could encounter resistance between $5.42 and $5.64 on the move higher. Any correction, is likely to be minor, and in that event prices are likely to hold $4.775 in October, $4.905 in November and about $5.00 in December, she advised her clients in her weekly commentary.

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