After enduring an ill-fated Tuesday morning rally to a high of $7.065, April natural gas futures reversed direction in the afternoon to record a $6.885 low before settling at $6.892, down two pennies on the day. Despite the second consecutive sub-$7 settle, some market experts warned that the recent trading behavior, combined with the potential for supportive crude and gas inventory reports over the next two days, could mean that the bulls aren't out to pasture just yet.
Traders tried to push it back above $7 but there was no follow-through, so the market retreated," said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. As for who was doing the moving on the day, Saal said the addition of the electronic Globex system makes it pretty difficult to know because "you are only seeing half of the people doing the trading. Word on the floor was that the locals were pretty big sellers early, then they were caught short and rallied it higher. However, there was nothing there. The market couldn't take that next step and fell back lower. The only thing that could be seen as positive on the day is the fact that we did not make a new low late in the session like crude futures."
April crude futures continued lower on Tuesday, recording a low of $57.75/bbl before closing out the day at $57.93/ bbl, down 98 cents. Meanwhile, April heating oil gained less than a penny to finish the regular session at $1.6902/gallon.
Saal said that while natural gas futures were able to break below $7 on Monday, no real statement has been made yet. "Even though the bears have probed down here, they really haven't opened the floodgates and ripped this thing down to drastically lower levels," he said. "I think we will have to see. It does appear that some buyers are showing up in the high sixes."
He noted that Wednesday and Thursday inventory reports will definitely be interesting to watch. "We are supposed to have some crude oil inventory numbers Wednesday that should be kind of friendly to the market and we are expecting a pretty significant natural gas withdrawal -- by seasonal standards -- in Thursday's report. A friendly crude report and a large gas withdrawal could produce a nice little bounce in natural gas futures, but we will have to see how that plays out."
As the heating season winds to a close, natural gas futures may have to rely on petroleum markets to sustain any advance. Prior to Tuesday's session, some cautioned bulls not to throw in the towel. "We would continue to cite a supply deficit of almost 200 Bcf against year ago levels, evidence of an unusually brisk pace of industrial and [electric generation] demand and a market that has not likely fully priced in the possibility of an active hurricane season and hot summer into the forward contracts," said Jim Ritterbusch of Ritterbusch and Associates. He went on to say that some expected commercial buying interest toward the distant part of the curve could act to prop up the nearby contracts.
"However, mounting a sustained price rally in nearby futures from current levels could prove arduous unless accompanied by a significant rally in the oil futures," he said. Arduous indeed. Early estimates of the natural gas storage withdrawal for the week ended March 9 are above 100 Bcf, but that may be the last meaningful drop in supplies prior to the start of the April 1 injection season.
The National Weather Service (NWS) predicts that for the week ended March 17 major energy markets will see below normal heating demand. New York, New Jersey and Pennsylvania are forecast to receive 159 heating degree days (HDD), or 33 below normal. The industrialized Midwest states of Ohio, Indiana, Michigan, Illinois and Wisconsin are expected to endure 161 HDD, or 40 fewer than normal. During last week's Midwest and eastern cold snap the Mid-Atlantic states above received 282 HDD, or a whopping 74 more than normal, and the Midwest tallied 258 HDD, or 40 more than the seasonal norm.
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