Mild Forecast, Technical Weakness Push Dec. Expiry Lower
Fueled by moderating weather forecasts and following Monday's 21-cent decline, natural gas futures tumbled lower in a classic expiration-day long liquidation Tuesday, as traders rolled their prompt month positions into back months. After a back-breaking sell-off in the last five minutes of trading Monday, the December contract gapped lower at the open and tumbled 35.2 cents to its final resting place at $6.016 yesterday.
Looking back at the price action over the last couple of days, Nymex local Ira Hochman was quick to point to December's inability to nudge past its all-time high at $6.62 set last Wednesday as evidence the market was in trouble. And while January was able to post a fresh high at $6.68 Monday, it ultimately fell Tuesday in sympathy with December. "Although you want to trade January because it's a truer month, you can't ignore the prompt month entirely. December never took out last Wednesday's high. This was a case, not of what the market did, but of what the market didn't do," Hochman said. January finished the day at $6.207, down 26.6 cents on the day and 37.7 cents for the week. By comparison, December plummeted a whopping 56.1 cents over the same two-day period.
Another factor that traders will need to take into account is the announcement by Nymex that it will be raising margins on its Henry Hub natural gas contract at the close of business Wednesday to $7,500 from $6,500 for clearing members; $8,250 from $7,150 for members; and $10,125 from $8,775 for customers. For Ed Kennedy of Miami-based Pioneer Futures, that means more blood on bears' coats than on bulls' hides following the market's correction over the last couple of days.
Also of impact will be the release of fresh storage data by the American Gas Association this afternoon. Preliminary expectations are centered on a net withdrawal of 90-110 Bcf. Last year at this time the market actually injected 5 Bcf, but analysts are quick to recognize the fact that last week was much colder than last week a year ago. According to Salomon Smith Barney, storage was likely decreased by 100-110 Bcf for the week ending Nov. 24. During that period, temperatures (as expressed by degree days heating) were 78.9% colder than last year and 37.8% colder than 10-year average.
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