Natural gas futures bears were still very much in the driver's seat after the November futures contract on Friday recorded the fourth new low for the downtrend, just in the past week. The front-month contract recorded a low of $3.290 before closing the regular session at $3.332, down 3.6 cents from Thursday and 20.3 cents lower than the previous week's finish.
After recording new 13-month lows on Monday, Tuesday, Thursday and Friday, many traders are left to wonder where and when a price direction turnaround might occur. In fact, the current weakness on the charts would appear to be bringing last fall's low back into play.
"Not many people have been expecting a return to the $2.409 low from Sept. 4, 2009, but as this thing has spiraled lower over the past few weeks into the low $3 price level, I'm starting to think it could be a possibility," said a New York trader. "The hurricane season appears to be a bust, the shale gas spigot continues to run full bore and gas demand has not recovered as much as analysts had been predicting."
If prices are somehow able to break below $2.409, 13-month record lows would be forgotten as futures would record an eight year-plus year low. The last time a front-month contract traded lower was back in March of 2002.
The trader added that a stretch of early, prolonged and widespread cold could bolster the bulls. "If a far-ranging chill hit us in the next week or so and stuck around for a while, I think that increased heating demand for gas could turn prices around. Unfortunately, from the looks of some of the winter forecasts released Thursday, that does not appear to be the case."
The National Oceanic and Atmospheric Administration and AccuWeather.com said Thursday a continuing La Nina event off the west coast of South America will be the dominant factor influencing weather across most of the United States this winter, bringing colder- and wetter-than-usual conditions to the Pacific Northwest and northern Plains, while much of the Southeast, Gulf Coast, Southwest and California will experience decidedly non-winter weather (see Daily GPI, Oct. 22).
As long as traders haven't gotten any kind of complete winter weather picture, analysts are expecting continued weakness in the front part of the curve.
"With the winter portion of the spread curve likely to be supported by temperature uncertainties, we are leaving open the possibility of additional contango expansion during the next few sessions," said Jim Ritterbusch of Ritterbusch and Associates. Ritterbusch doesn't see much on the horizon likely to support nearby prices. "Looking across the spectrum of current and potential price drivers, we still see the availability of bearish items far exceeding those of the bullish variety. About the only bullish comments that can be proffered about this market are that nearby futures have become oversold technically and that the market has discounted a lot of bearish news, particularly the huge storage level."
While some have already written off the 2010 Atlantic hurricane season, it might not hurt to look to the tropics where "persistence has paid off for [Tropical Storm] Richard," according to Alex Sosnowski, a meteorologist with AccuWeather.com. "Now the nail-biting time begins for not only the Caribbean, but also Florida and the eastern half of the Gulf of Mexico in general."
Sosnowski said Friday the tropical system, currently in the western Caribbean, could discover a road into the eastern Gulf of Mexico next week, perhaps bringing tropical trouble to Florida. "While wind shear will continue to cause issues with Richard in the short term, it is possible that the system will overcome the adversity to become a major hurricane," he said.
If a "potent storm system" forecast by AccuWeather.com to plow into the Pacific Northwest with windswept rain and blinding high elevation snow this weekend scoops up Richard from tropical waters, "disruptions to vacations and fishing in the eastern Gulf of Mexico and possibly disruptions to petroleum operations in the northern Gulf could occur, depending on the strength and track of the storm," the meteorologist said.
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