Adding to the week's trend of back-and-forth trading -- a product of a directionless market -- October natural gas futures probed lower values on Friday and closed at $3.881, down 13.8 cents from Thursday's finish and 14.3 cents below the previous week's close.
The prompt-month contract traded within a little more than a 30-cent range for the week between $3.806 and $4.133. Despite the up-and-down trading, the market is basically seen as range-bound as no important support or resistance numbers on the charts have been tested.
Blaming Friday's drop on nothing more than the recent run of choppy trading, a Washington, DC-based broker said he still wears hooves and horns in natural gas futures. "We've sold off, rallied up, sold off again, rallied, and then come down once again. As we move along sideways here, think of it as a spring being coiled. Eventually, volatility expands again. The longer it has been coiling, the greater the expansion when it is released. I would bet on an expansion to the upside at this point.
"This is why we are still in bull mode as we believe this is still part of the bottoming process ahead of the seasonal rally that normally begins sometime in September. Sure we dumped down Friday, but our indicators are still on the bullish side of things."
To know that a rally has some staying power, the broker said futures would have to get above $4.500. "Once you get up there I think we could declare that we are in a more robust bullish phase."
For the moment traders have elected to discount newly emergent Tropical Storm Matthew, which impacted Central America Friday afternoon. As far as where Matthew goes next, the National Hurricane Center has it headed west-northwest through the weekend, but beyond that "there is serious divergence in the guidance." Some models have it headed north toward the west coast of Florida and others send it into the Gulf of Mexico.
According to Matt Rogers, president of Commodity Weather Group in Bethesda, MD, "Either way, the models still either shift or redevelop a new center farther east into the Caribbean toward the middle of [the coming] week. This sets the stage for the 'lift' into Cuba and Florida. Nonetheless, there is still a cluster of European and American ensemble members [weather models] that send the storm west or northwest into the production area. This means that a low Gulf production risk (about 15%) must be kept in place."
Traders aren't impressed with what normally might be a bullish market development. "The most bullish aspect of this market is still a much improved technical picture that has featured a gradual but choppy up-trend this month that has managed to develop despite little need to insert hurricane premium into the pricing structure," said Jim Ritterbusch of Ritterbusch and Associates. "Regardless, we are leaving open the possibility of a renewed price downdraft...[and] we will leave open the chance of a price decline back toward the $3.80 area ahead of Tuesday's expiration of the October contract."
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