Despite AGA-Induced Sell-Off, Bulls Maintain Control
In another topsy-turvy trading session, natural gas futures finished well off daily highs, but still in positive territory yesterday as players bid up the market in the morning only to dump it lower after fresh storage data was released. The January contract traded within a wide, 50-cent range and closed 22.4 cents stronger at $9.326. Most of the out-months were much more staid, with May through December 2001 contracts only able to tack on a 1.5-cent gain. Illiquid trading contributed to the volatility as less than 45,175 contracts changed hands.
According to the American Gas Association 158 Bcf was pulled from underground storage facilities for the second week in a row, reducing working gas levels to 2,113 Bcf or 64% full. Most traders surveyed by NGI were quick to dub the report neutral as it fell neatly within the 145-170 Bcf range of expectations. However, the price move that preceded the storage announcement was anything but neutral. Within 10 minutes of the release, prices tumbled 40 cents to notch yesterday's $9.25 low.
Storage is now 630 Bcf or a whopping 23% behind year-ago figures and 456 Bcf or 18% behind the five-year average. Last year at this time a withdrawal of 116 Bcf was seen and the five-year average is 112 Bcf. Next week the historical comparisons are more stout, with last year's drawdown at 173 Bcf and the five-year average withdrawal at 148 Bcf.
Looking ahead, traders are growing increasingly concerned with the market's ability to forge higher on dwindling estimated volume. Specifically, Tim Evans of New York-based IFR Pegasus points to the market spiking higher in Access trade as traders attempt to generate the most upside price appreciation for the fewest contracts expended. "Either the market rises to a point where it triggers heavy volume in a blow-off top or the market is slapped down once it encounters stiffer opposition."
That said, Evans remains bullish but warns that January will have a difficult time overtaking the Dec. 11 highs in the $9.60-86 area. "These highs may therefore hold or perhaps yield only a minor new high before the market succumbs to a correction. If not, there is likely to be more selling associated with the even $10.00 level," he said.
In last night Access trading the market was already in the process of testing resistance as the January contract checked 32.8 cents higher to trade at $9.654 as of 6 p.m. (EST).
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