Pre-Holiday Sell-Off Brings Bears Out of Hibernation

With little in the way of fresh fundamental news, natural gas futures slipped lower in a holiday-abbreviated session last Friday as traders took profits following a six-day, $2.30-cent price rally.

The January contract quietly shuffled lower for much of the session only to be suddenly rocked higher and then lower in the last 10 minutes of trading by successive waves of market-on-close buying and selling. January closed at $9.579, down 25.1 cents on the day. Meanwhile, losses were more pronounced in February, which sunk 29.8 cents to $8.932.

Looking ahead to expiration week, traders were mixed Friday on the direction of the market. While bulls contend that storage and weather news likely will point to further gains this week, bears remain skeptical for technical reasons. Nymex local consultant Ira Hochman is a member of the latter group and points to February's inability to stay above the $9.32-36 area as his proof. "I would suggest selling against that area until the market can prove it can stay above [it]... If you remember the last time this happened, [January] dumped from $9.65 to $7.33."

An even more bearish scenario, Hochman continues, would be in place if February stays beneath the market's new short-term momentum number at $9.08. If, however, February is able to climb through that level, he endorses a strategy of buying February for an expected move to the aforementioned $9.32-36 area.

Alternatively, Susannah Hardesty of Indiana-based Energy Research and Trading remains bullish and points to the likelihood of continued Arctic blasts of cold air along with a rapidly depleting storage situation. Because of that, she believes the third (and highest) of the autumn highs is still to come and will be achieved on a move to the $11.00-13.50 level.

In light of the fact that a whopping 635 Bcf has already been pulled from storage and December isn't even over yet, analysts have begun to speculate on how low storage could get at the end of the first quarter of 2001(see Daily GPI, Dec. 22). According to Hardesty, 544 Bcf will be available come April 1 if the market withdraws at the six-year average, 401 Bcf if the market withdraws at the same rate as last year, and a mere 251 Bcf if the market pulls at the same clip it did during the winter of 1995/96. And if the market continues at the increased rate it is currently withdrawing thus far this year (67% more than the six-year average), relative to prior years, storage levels could be totally depleted, she said.

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