Natural gas futures added to the previous day's gains Wednesday as the November contract traded between $3.748 and $3.888 before coming to a close at $3.865, up 12.2 cents from Tuesday's finish.
While noting that Wednesday's rally was fairly impressive, Tom Saal, senior vice president at Hencorp Futures LC in Miami, said the move higher would need to be much larger to signify any sort of shift in market sentiment.
As the natural gas futures market's long grind lower begins to show signs of coming to a halt, it is important for traders to protect themselves from the inevitable rebound, Saal told NGI, adding that traders need to use all of the trading tools at their disposal.
"The batting average has been pretty good that the seasonal $3.610 low from late August will hold. I've got to go with history here and believe that low will stick, but crazier things have happened," he said. "I think this is either going to be a very good place to be a buyer, or the speculators are going to knock it lower. Based off of the CFTC's [Commodity Futures Trading Commission] Commitments of Traders reports, the specs have clearly been doing the selling. They have been riding this trend down pretty well."
Saal and his colleague Ed Kennedy will be taking time off from gas futures trading to host their popular two-day gas hedging seminar: "Where's the Market Going? And What Can You Do About It?" The seminar will be held at the Magnolia Hotel in Houston Nov. 11-12. Visit http://seminars.gasmart.com for details.
Currently, Saal recommends using an options strategy. "Options volatility is relatively low, so they are not very expensive right now," he said. "If I'm an end-user, I might buy call options. A $4 call option right now for November is running at 6 cents/MMBtu. That's pretty cheap insurance against the seasonal low holding and the market moving higher. For December calls, you could pick up $4.50s at 9 cents/MMBtu."
Saal noted that options protect against the market moving higher as speculators cover their short positions. "Because the market seems to be getting more complacent after grinding lower, we could see fundamentals ignored as speculators decide to take a profit and push the market higher," he said.
In the near future, Saal noted that new regulations could change the market landscape along with some of the players. Much is still unclear about how the CFTC will implement the Dodd-Frank Wall Street Reform Act, which was enacted in July. "We still have to see how all of that shakes out and how it will impact the day-to-day commodity markets. Stay tuned as we'll be watching this thing very closely."
A working lunch focused on the newly passed Dodd-Frank Wall Street Reform Act and what it means to the natural gas trader and hedger has been added to the November seminar.
Taking a peak at expectations for Thursday morning's natural gas storage report for the week ending Oct. 1, it appears that most industry experts are expecting an injection in the high 70s Bcf or low 80s Bcf. A Reuters survey of 25 industry players produced an injection range of 71 Bcf to 86 Bcf with an average build expectation of 78 Bcf. Bentek Energy's flow model projects an 81 Bcf injection for the week, which would bring inventory levels to 3,495 Bcf. The research firm anticipates a 51 Bcf injection in the East Region, with the Producing and West regions adding 29 Bcf and 1 Bcf, respectively.
"For the week ended Oct. 1, Bentek projects a build 23 Bcf above the five-year average," the company said in its weekly storage note. "If injections for the remainder of the injection season average at the level of the five-year average, then inventories will end the season at 3,732 Bcf, almost 100 Bcf below last year's record of 3,837 Bcf. Despite the record summer heat in the eastern half of the country increasing demand in the power sector to record levels, total injections for the season are expected to be above the five-year average."
The number to be announced at 10:30 a.m. EDT will also be compared to last year's date-adjusted 68 Bcf injection for the week and the five-year average build of 67 Bcf.
The National Hurricane Center (NHC) upgraded what was a system of low pressure in the northern Caribbean to Subtropical Depression 17. While the system is getting better organized, Gulf energy interests should remain unaffected as the NHC projects an ultimate trajectory to the northeast into the central Atlantic. The second system NHC had been monitoring east of the Lesser Antilles has dissipated.
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