Natural gas bulls thought they were in the driver's seat as just prior to the opening of Monday's floor trading January futures traded as high as $4.547, a stout 13 cent rise relative to Friday's settlement.
January futures opened at $4.503 at 9 a.m. EST and the day's trading carved out a relatively wide 20-cent trading range as weather forecasts surfaced showing more moderate temperatures by next week. At the close January futures rose 0.3 cents to $4.420 and February gained a minuscule 0.6 cents to $4.434. January crude oil added 82 cents to $88.61/bbl.
Meteorologist John Dee reported continued cold for eastern points in his six- to 10-day forecast and said "the eastern half of the US is in store for another week of high demands for heating energy, as well below average temps look to dominate things there. In the west, temps will run above average for most of the week ahead and then cool some to average in the north by the end of the week."
He added that "the outlook for the weekend and early part of next week sees temps to settle in towards more average levels across most of the US, with some below average temps hanging on across the eastern third of the US and a chance for some above average temps in the eastern Rockies and most of the Plains. The bottom line is high demands for heat will occur in the eastern US this week, with slack demands in the west and then by the weekend and next week, demands will even out towards average levels in much of the country."
Analyst Jim Ritterbusch of Ritterbusch and Associates calls this a "difficult trading environment as the bulls continue to be energized by short-term demand strength while the bears remain focused on a substantial supply overage that is unlikely to dissipate considerably across the winter period. The market is also aware of the fact that natural gas prices were trending lower throughout this year's first quarter amidst an unusually cold winter."
Short-term demand strength and supply overages notwithstanding, Ritterbusch contends that "this market will still need to negotiate its way through a couple of weekly storage reports that could post some unusually heavy draws on supply... While some potential warming in the temperature forecasts could restrict upside progress later in the week, we are maintaining a bullish price view for now as we leave open the possibility of one more brief run into new high territory," he said in a note to clients.
Today's trading seems to fit a pattern. Mike DeVooght, president of DEVO Capital, notes that recent rallies have been "short lived," and he points out that by the end of last week the gas market was trading near the prior week's settlements.
For the moment near-term weather developments continue to be the short-term price drivers, and in a morning note to clients DeVooght said, "the gas market has a good chance to rally into the high $4, low $5 range. At that time we will monitor the market to see if there is good reason to reestablish our short producer hedges. On the speculative side we will continue to trade from the long side." He said trading accounts are advised to hold on to a long January futures position at $4.05 and risk 22 cents on the trade.
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