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Bulls Get Coal-Filled Stockings as Futures Close 77.4 Cents Lower than Prior Week

Natural gas futures trading during Friday's shortened session was a quiet affair as a number of market players opted to extend the already long weekend. Finishing up the bearish week, the January contract traded in a slim 9-cent range from $6.625 to $6.715 before settling at 1 p.m. EST at $6.635, down 16.5 cents on the day and 77.4 cents lower than the previous week's close.

With the weather outlook remaining unseasonably warm and storage inventories remaining more than ample (see Daily GPI, Dec. 22), lower prices are still more likely than higher ones. As of Dec. 15, working gas in storage sits at 3,167 Bcf, which is 342 Bcf higher than the same time last year and 274 Bcf above the five-year average of 2,893 Bcf.

"Things were definitely quiet in the market today. A lot of traders waited for Thursday's storage report to drop before getting a head start on the long weekend," said Steve Blair, a broker with Rafferty Technical Research in New York. "To confirm the absences all you have to do is take a peek at the tight trading range on the day."

The broker noted that the only highlight of the day actually occurred in Globex trading a little before the regular session opened. "We broke below support at $6.600 temporarily to notch a low of $6.568, but we rebounded before Friday's regular open. One of my customers put it best. He said the push below $6.600 was likely an attempt by the market to push out some weak longs in there."

Blair added that the weather picture going forward remains key. "People are going to look towards Tuesday to see what the new weather forecasts have to say. With the long weekend, things could change by Tuesday."

Analysts are mulling a potential repeat of Thursday's low withdrawal in the next report. Most, if not all, of the modest 71 Bcf withdrawal for the week ended Dec. 15 can be attributed to low residential and commercial heating requirements for the week ended Dec.16. There is a one-day difference between the time period used for natural gas inventory measurement and National Weather Service (NWS) heating degree day (HDD) forecasts, but for that week a thin 147 HDD were tallied for New York, Pennsylvania and New Jersey, or 73 below normal. The Midwest was similar. Ohio, Indiana, Michigan, Illinois and Wisconsin aggregated 164 HDD, or 87 fewer than normal.

Similar HDD figures are forecast for the week ended Dec. 22 and that should result in another storage withdrawal figure that more than likely further increases the surplus. The NWS predicts that New York, New Jersey and Pennsylvania will see 170 HDD, or 65 fewer than normal, and the Midwest will see 189 HDD, or 78 fewer than normal.

Jim Ritterbusch of Ritterbusch and Associates said natural gas futures will now be forced to accommodate a second bearish withdrawal figure."The market will now be forced to price in a similarly bearish figure into next week's report, a factor that will tend to temper positive responses to any possible forecast changes," he said. The actual withdrawal will compare to a five-year average of 127 Bcf and last year's 162 Bcf takedown for the week ended Dec.22.

Natural gas bulls, however, are undeterred. Phil Flynn of Alaron says to buy February natural gas at $6.60 with a stop loss order at $6.40.

Due to the Christmas and New Year's Day holidays, the Energy Information Administration announced that the storage report for the week ending Dec. 22 will be released on Friday, Dec. 29; and the report for the week ending Dec. 29 will be released on Friday, Jan. 5, 2007. Both reports will be released between 10:30 a.m. and 10:40 a.m. EST.

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