October natural gas futures surged Friday as traders elected to cover short positions ahead of what could be an extended and tumultuous weather weekend. At the close October futures rose 18.8 cents to $3.939 and November added 14.5 cents to $4.170. October crude oil fell 42 cents to $74.60.
"That's all we are seeing is short-covering," said John Woods, a senior trader at MacNamara Options in New York. "If you look at the more deferred contracts, they are only up seven to eight cents, but the spot is up 18. There's another storm near the Gulf, and that would make you want to cover a little bit. Heck, we had to eventually pop up somehow. We've come down from $5 to $3.70, but there is room to move up to about $4, but traders will likely sell it from there. This is just October-covering."
Woods added that "anything with a $4 handle is a prime selling opportunity. These guys are going to sell it as long as there are no changes in the storms."
Hurricane Earl and Tropical Storm Fiona are tucked safely into the Atlantic, but traders will be keeping a close eye over the weekend on two systems farther out in the Atlantic. The National Hurricane Center at 2 p.m. EDT reported that what is left of Tropical Depression Gaston was about halfway between the Cape Verde Islands and the Lesser Antilles. It was slowly making its way westward at 10 mph and could reform. NHC on Friday gave it a 50% chance of forming a tropical storm again in the next 48 hours.
Farther out, showers and thunderstorms associated with a tropical wave about halfway from the coast of Africa to the Cape Verde Islands were showing some signs of organization and conditions looked favorable for this system to develop. NHC on Friday put the chance of it developing into a tropical storm at 30% in the next 48 hours.
Technical analysts aren't convinced that higher prices are in the cards. "I need to see this market get above $4 decisively to get aboard [the higher prices train]," said Brian LaRose, an analyst with United-ICAP.
He also said that even with a strong close above $4 that "would not be enough to mark a seasonal bottom. Trust me, I am not one to be short natural gas after Labor Day, and if I had to pick a direction, I would want to be long this time of year. But that said the one anomaly that has been in place since the $2.409 bottom is that every seasonal peak and bottom has occurred several months later than average. The question is whether we are going to get an additional seasonal decline that will take us into late September or even October. That's the downside risk at this time. You can't rule it out."
Market bulls also got some help in the form of an employment report that showed economic conditions to be not as bad as many had thought. Before Friday morning's release of employment figures from the Labor Department, traders were thinking that August non-farm payrolls declined by 90,000, a slight improvement over July's decline of 131,000. The actual figure came in at a somewhat less negative decline of 54,000. The report is encouraging in that prior to its release, unfavorable weekly unemployment insurance claims had been hinting at a more unfavorable employment situation.
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