Despite Promising Open, Futures Shuffle Lower Early
After opening on a strong note, natural gas futures tumbled lower in the first half-hour of trading Monday as traders took profits following Friday's surprising 17.1-cent rally. However, once December had etched a $4.80 low for the day, the market was left to chop lazily sideways for the rest of the session. The prompt month finished at $4.849, down 8.2 cents for the day.
Several traders polled by NGI were surprised by the market's inability to test psychological resistance at $5.00, after opening just a nickel below that level. However, mild weather across much of the East gave cash prices little reason to mimic Friday's futures strength, making bulls dubious of those gains.
Looking ahead, traders remain in agreement that unless cooler weather shows up by Thanksgiving, the futures market will have a difficult time hanging on to the current price level. For proof, one only needs to look back at the warm weather last autumn when the market lost more than 30% of its value during a four-week period beginning in late October.
However even below normal temperatures may be overlooked if storage continues to narrow the oft-quoted year-on-year deficit, which has shed a third of its value over the past two storage reports. As of Oct. 27, that shortfall stood at 283 Bcf.
According to New York-based IFR Pegasus, storage may continue to cast a bearish shadow over the market between now and Wednesday at 2:00 PM (ET). "That's when the AGA will release storage data for last week that we think will show net injections of 15-25 Bcf, outpacing the 12 Bcf refill from a year ago.. This has the potential to dampen bullish sentiment, although the market was strong enough to shrug off a more bearish 70 Bcf figure in the prior report." On balance, Pegasus remains cautiously bullish and looks to work the long side of the market with a $5.03 buy stop.
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