With no real storm threats materializing in the tropics and no shortage of supply, natural gas futures continued to probe lower price levels Friday as the November contract recorded a low of $3.788 before closing the regular session at $3.797, down 7.5 cents from Thursday finish and 21.2 cents from the previous week's close.
After the November contract closed lower two out of its first three regular sessions as the front-month contract, market watchers are starting to wonder whether the seasonal rebound will get off the ground. In fact, some experts have their concerns about whether the $3.610 prompt-month contract low from Aug. 27 is even safe.
"The November contract continues to drop. While the market remains in the recent spot-month range, this thing is definitely creeping lower under pressure because there isn't any kind of fundamental strength to prop this thing up," said Gene McGillian, an analyst at Tradition Energy. "The question is, if we get a couple more weeks of mild weather and they start really pumping the injections into storage again, will the market have enough surrounding weakness to make a new low for the year. If we get into November and we haven't seen any heating demand to speak of, you might not want to proclaim that $3.500 is safe as support. However, over the next few weeks I think there is a real reluctance by traders to get real short."
McGillian warned that hurricane fear premium is on borrowed time. "As you get further into October, the threat of a serious storm getting into the Gulf of Mexico definitely begins to fade," he told NGI. "The only thing really on the horizon right now that could provide a little bit of a boost to the natural gas market is if we start to see spillover from the rest of the energy complex. If people begin to think the recovery that is driving oil prices higher is going to help boost gas demand, then we could see some short-covering. Barring that spillover effect, I think the market is going to grind lower until the arrival of heating demand."
Market technicians say it's now time for the bears to flex their muscles. "While the bears have performed superbly in repelling natgas from the $4.000 area, they have shown no ability to actually push natgas to fresh lows. To have any case for visiting $3.281-2.747 from here, the $3.610 low must be decisively broken," said Brian LaRose of United-ICAP. His data show that if the market can't pull that off "the case for a larger-degree ABC advance up from $3.610 will quickly become the more favorable wave count."
If bulls are going to turn this market higher, they will be fighting economic headwinds. Neither bulls nor bears were especially pleased with Thursday's release of final second quarter gross domestic product (GDP) figures. The Commerce Department reported that GDP for the second quarter was revised up incrementally; the actual figure came in at 1.7% annual growth, slightly ahead of expectations of 1.6%. According to economists, the rate is not generally sufficient for long-term economic growth and to reduce unemployment.
On the tropics watch, the National Hurricane Center's (NHC) radar did not show much for oil and gas producers in the Gulf of Mexico to be concerned with. As of Friday afternoon, a system just east of the Yucatan Peninsula had a 10% chance of tropical cyclone formation over the weekend. Further out in the Atlantic the NHC attached a 30% chance of strengthening label to a large area of disturbed weather, but noted that thunderstorms and showers had diminished a bit by Friday afternoon.
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