After tracking lower in Sunday's overnight Globex trading session on news that some weather forecasts were calling for moderating temperatures next week, Nymex January natural gas futures maintained the downward price momentum throughout Monday's regular session. Just two sessions after the prompt month reached a $9.050 high, the very same contract on Monday reached a low of $7.780 before closing at $7.806, down 61.6 cents from Friday's close.
"The weather got cold last week and we got a big rally in natural gas futures. Now, it appears that we are not going to have continued below normal weather for the rest of the year, so we are going to cycle through some more normal to above-normal weather so prices moved lower," said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. "I think this is the time of year where prices can get pretty volatile in both directions."
Looking at who was doing the moving and shaking Monday, Saal said word on the floor was that the local traders and the funds were active in selling. "According to the latest Commitments of Traders report, we knew the funds were net long, so maybe they weren't happy with their position at these price levels," he said.
As for the market's next move, Saal said it is tough to say right now. "We could see another down session Tuesday, but weather outfits like AccuWeather are already calling for colder than normal weather after this upcoming warm-up, so it comes down to how and when do we react to the cycle. If I was a buyer, I would at least ride it out for the short term. If I was a seller, I would probably try to do some selling to try to capture some of these prices at or above $8 if we got a little rally."
Speaking more generally, enerjay LLC's Jay Levine said the energy futures markets of late has seen fairly significant upticks across the board in spite of existing fundamentals -- i.e. storage/inventories -- largely based on what-ifs. "That alone shouldn't be all that surprising considering the future is pretty much always an unknown," he said, noting that early winter signs point to early cold. He added that with the world's current strife, markets have been assigned "a degree of fear premiums" for the foreseeable future that have "nothing whatsoever to do with existing fundamentals."
Despite the recent upswing, Levine said January natural gas is currently content with testing the $8 and sub-$8 area on the downside. However, if it were to get back above $8.250, then the broker said he could see a possible test of $8.450-8.550 -- then something in the $8.850-$8.950 area with $9.50, $9.75 and $10.25 "looming in the wings" should things then get hairy.
Citigroup analyst Tim Evans said he sees last week's attempt to jump above and stay above $9 as a clear failure. "The natural gas market has extended Friday's losses as the temperature forecast confirmed the bearish intermediate-term case." Evans said that according to Tulsa-based Frontier Weather, cool temperatures across the U.S. will rule at least for the next few days, but the six-to-10-day and 11-to-15-say outlooks feature warmer than normal readings across both Canada and the northern U.S.
"The market may still have to skate around a supportive storage report for the week ending Dec. 8 (this week), but the data for last week and the two reports to follow look like they should all be bearish to one degree or another. It appears that the upside breakout attempt has failed and that a break to the downside now has the better chance of establishing an intermediate-term trend."
In its most recent six-to-10-day forecast (Dec. 3), the National Weather Service shows the entire U.S. with above normal temperatures with the only exception being South Texas and Florida. Weather forecasts are by no means unanimous. AccuWeather in its six-to-10-day forecast says temperatures will be above normal only south of a broad arc extending in the West from Reno, NV to Dallas to Washington, DC. North of an arc including eastern Montana, North Dakota, and western Minnesota is forecast to be below normal and the remainder of the nation is predicted to be normal.
"The end of the week looks rather cold from the Midwest to the Northeast, as the jet stream will deliver arctic air into the region," said Brett Anderson, AccuWeather meterorogist. He added that out west, temperatures across the Rockies and Plains should start to moderate a bit, but it will still be chilly. To the south "subtropical moisture will spread into northern Mexico and South Texas, resulting in clouds and some rain," he said.
Major metropolitan areas are expected to be chilly nonetheless. AccuWeather says that the high Tuesday in Chicago will be 32 degrees but by next Monday will reach 40. The normal high in Chicago this time of year is 40. In Philadelphia, Tuesday's high of 41 degrees is expected to rise to 46 by next Monday, and the normal high for Philadelphia is 48.
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