Taking a break from notching new 13-month lows, November natural gas futures on Tuesday -- one day ahead of expiration -- recorded a low of $3.263 before closing the regular session at $3.354, up 3.7 cents from Monday's finish.
While not ready to announce any type of sea change in price direction, market experts said some indicators show that futures could currently be coming to a low before heating demand arrives and prices reverse course.
"Natural gas has begun showing signs that it is rebalanced once again," said Gene McGillian, an analyst at Tradition Energy. "We seem to be holding the $3.25 level as the market bides its time until heating demand shows up. The risk of a large change is still heavily weighted toward some kind of rally, so the sellers seem kind of reluctant to pound this thing much lower."
McGillian said one of the hot topics right now is whether futures have a shot of breaking below $3 before heading higher. "On the November expiration Wednesday, we might have the opportunity to grab a $2 handle if the sellers get the ball rolling. However, once November is off the board, a break of $3 is unlikely," he told NGI. "The December contract closed at $3.766 on Tuesday, so it would need to shed three-quarters of a dollar in the little time left before heating demand sets in. That seems pretty unlikely. We're within six weeks of seeing December weather, so the market should be starting to see signs that heating demand will provide some support. I think we witnessed some of that on Tuesday as that $3.250 level held."
Commenting on November's expiration Wednesday, McGillian said the market could get pressured below $3.250 to record yet another 13-month low, but he doesn't see it falling much further.
The weather outlook for the next six to 10 days does not look helpful from the bulls' perspective. In its morning report MDA EarthSat showed normal temperatures for New England, the Mid-Atlantic and the eastern Great Lakes, as well as northern California and the Pacific Northwest. The entire rest of the country, however, was forecast to be above normal to much above normal in the case of the Northern Plains.
"The forecast has trended slightly cooler day-on-day across the Midwest today, especially mid-period. Still, widespread warmth is expected across the country, with the exception of northern New England and the West Coast. The warmth is expected to peak in the Midwest early in the period, with a day or two of much-above [normal temperatures] still possible across the Midwest. The warmth will not be as intense in the East and is expected to peak mid-period. The forecast has trended warmer across the desert Southwest and Southern California, with 'much-aboves' expected late in the period," the forecasting firm said.
Some analysts don't believe that the market has seen its lows and look for any moves higher to meet with formidable selling.
"We look for Friday's highs at the $3.40 level to provide formidable resistance through the rest of this week given a continued array of bearish elements that remain available to this market," said Jim Ritterbusch in a note to clients. He added that it was very difficult to try and pick a market bottom "in this type of a market that is heavily influenced by weather uncertainties and one that is awaiting signs of a production response to low prices.
"Nonetheless, we feel that lows have yet to be placed. From here, additional price slippage to the $3.15 area could be forthcoming ahead of [Wednesday's] November contract expiration. As a general matter, we will continue to caution strongly against attempting to pick a bottom to this orderly price decline that may eventually require some evidence of horizontal production restraint before a longer-term low can be placed."
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