The October natural gas futures contract strung together its third consecutive higher regular session close on Tuesday after testing resistance at the $4 price level. The prompt month reached a high of $4.020 before closing the day at $3.966, up 2.8 cents from Monday's finish.
After gaining 19.8 cents over the last three trading days and 35.6 cents from the prompt-month low of $3.610 recorded on Aug. 27, traders and market watchers are debating whether the seasonal low is in. Last year's seasonal low of $2.409 was recorded on Sept. 4, 2009. Four months later in January futures hit the year's winter peak of $6.108.
Hencorp Futures LC broker Julio Sera said he is not sure whether the seasonal low has been recorded yet, but he expects higher prices in the near term. "We're testing $4 right now, but I think we'll likely have a little spike higher here before October's expiration. We'll have to see what kind of resistance we run into," he said. "A little profit to make everyone think it's going much higher, then I think it might get crushed to the downside again. All of this depends on how the 2010 Atlantic hurricane season finishes up and then whether we get an early start on winter temps."
Speaking at the LDC Forum in Chicago on Tuesday, Paul Corby, senior vice president of Planalytics, said he sees a buying opportunity. "The best cure for low prices is low prices and the best cure for high prices is high prices," he said. "We're at low prices right now, so I think it is a great time to be buying." He noted that the current oversupply situation will sort itself out because markets always do.
Corby added that the three-year strip just broke $5 to the downside for the first time in eight years, which means gas is "pretty cheap" currently. "If natural gas is under $5 right now at the three-year strip and the supply side starts rebalancing itself, I think $4.800 gas three years from now would be a real bargain."
Other traders also see signs of a market ready to rise, even though Atlantic storm threats appear minimal.
"This market is beginning to show signs of an upside breakout following [Monday's] failed attempt," said Jim Ritterbusch of Ritterbusch and Associates. He conceded that overnight trading was confined to a narrow 6-7 cents, yet "we still look for a push to above the $4.00 level and we are reinstating our short-term upside target to the $4.06 area. But at the same time, we feel that such a development may require the assistance of a supportive storage figure on Thursday since this market is still not getting much pop out of the storm factor."
Traders utilizing trend-following systems, however, are not yet ready to change their bearish trading strategies. "My model still shows the market in a downtrend," said an Oklahoma City-based trader. He added that it would take a close of the October contract over $4.10 for him to abandon shorts and go flat, but "you can certainly play the market selling rallies up against that level."
Julia strengthened overnight Monday to reach hurricane status, and Igor remains a monster Category 4 hurricane on a path that could take it dangerously close to Bermuda this weekend, according to AccuWeather.com meteorologists. Of more concern for U.S. interests is an area of low pressure in the Caribbean that became Tropical Storm Karl Tuesday afternoon.
"This system poses an immediate threat to the Yucatan Peninsula and will eventually emerge over the Gulf of Mexico later this week," said Heather Buchman, a meteorologist with AccuWeather.com.
While most computer models show Karl making landfall Saturday as a hurricane between Tampico and Veracruz, Mexico, keeping it well south of Brownsville, TX, and the areas of northeastern Mexico that were hardest-hit by Hermine, Alex and Tropical Depression 2 earlier this season, Buchman warned that "a landfall farther north cannot be completely ruled out."
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