December natural gas futures traded in a tight 10-cent range on Friday before closing the regular session at $3.937, up 8.1 cents from Thursday's finish but 10.1 cents lower than the previous week's close.
While the bears have what will likely be a record level of gas in storage behind their case for lower prices and the bulls are pointing to the fact that winter cold is right around the corner for their higher price argument, at least one broker believes the market will be rangebound in the near term.
"Sure we have a lot of gas in storage and will likely set a new all-time record with next week's report, but I think that has been factored into prices already to a degree. We're also entering winter, so demand is going to kick in at some point, but we're not there yet," said Steve Blair, a broker with Rafferty Technical Research in New York. "I think we're pretty much rangebound between $3.500 to $4.000 until we start to see this storage get sucked down once some real cold settles in."
Looking further out, Blair said natural gas could see a demand uptick if President Obama keeps to his word. "What's exciting from the gas industry's standpoint is that the president in his election wrap-up speech mentioned natural gas, which really isn't something he has done before," Blair said. "If this country starts to get serious about getting off oil and using natural gas as part of the replacement, that new demand will definitely show up in the prices down the road."
The natural gas industry was surprised Wednesday when Obama cited natural gas as an issue that both Republicans and Democrats could find common ground on in the 112th Congress. "We've got, I think, broad agreement that we've got terrific natural gas resources in this country. Are we doing everything we can to develop those?" the president said at the White House (see Daily GPI, Nov. 5).
Traders of all stripes were pleased with the 8:30 a.m. EDT release of October employment data from the Labor Department. Expectations were that non-farm payrolls increased by 60,000, up sharply from September's minus 95,000. The actual figure came in at a robust 151,000. Much of recent employment data has been soft as the result of a contraction in government employment, in large part driven by the end of the Census. However, nongovernment employment improved as well, gaining 159,000 jobs, up from September's rise of 64,000.
Recent cold in the East has buoyed cash prices and, according to some, at least provided a floor for futures. However, if by mid-December significant cold isn't in hand or on the horizon, some traders see a significant price correction setting in, which could take prices as low as last year's $2.409. The problem from a trading perspective is how much further market downside remains versus an advance in prices. "A little over a year ago we were trading in the low $2 range, but how much risk/reward do you want from this market?" queried a New York floor trader.
Top traders see further market deterioration. According to Jim Ritterbusch of Ritterbusch and Associates, "we still look for an eventual breakout to develop to the downside given the continued bearish fundamentals that have been evolving during recent weeks. We will also note that this market is largely insulated from the vagaries of the currency and equity markets given its largely domestic nature and its heavy reliance upon weather factors for near-term price direction. All in all, we are maintaining a sideline stance while we lean toward the bearish side over the very near term in anticipation of a move down into the $3.66-3.70 zone," he said.
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