Ending a three-day streak of lower closes by the thinnest of margins, prompt-month natural gas futures on Friday traded below $4 for the first time since the December contract did it on Nov. 19. However, January futures ended up rallying to close at $4.066, up 1.8 cents from Thursday's finish but down 35.1 cents from the previous week's finish.
During Friday's session the prompt-month contract traded in a $3.951 to $4.110 range before coming out on the plus side of Thursday's finish, halting a three-day decline streak that totaled 37.2 cents. At least one broker said he attributed the break in the downward streak on Friday to new forecasts of near-term cold.
"Around noon EST the updates to the weather models came out. Largely the updates revised the back end of the 11- to 15-day outlooks colder," said a Washington, DC-based broker. "I think that popped us up a bit after we fell below $4. That said, this market is still in a very bearish mode."
He noted that the market would have been singing a very different tune just three short years ago. "With this much early cold in December, prices would have been screaming higher," he hypothesized. "People would be talking about revising their demand models and strategies as concerns were voiced that storage would be ripped lower than it has ever been. Obviously, that is not the case now. We have supply wherever we want it in this current market. I would suspect that we are going to go even lower to test the $3.700 to $3.600 area again."
The fundamental camp saw Thursday's 17.4-cent loss in January futures as all about the weather and related opportunistic selling. "At this time of the year, weather forecasts tend to provide primary pricing impetus, and at the present time natural gas futures appear more fixated on moderating temperatures within the eight-to 14-day time window rather than continued cold expectations within the six- to 10-day time frame across the eastern portion of the US," said Jim Ritterbusch of Ritterbusch and Associates. "A growing consensus of normal temperature trends into the New Year holiday across virtually all key consuming regions has obviously emboldened the funds into an assertive reentry into the short side."
Heading into Friday's trade, market technicians saw an immediate need for the market to turn higher if further price erosion is to be averted. "Bulls need to carve out an immediate bottom Friday to salvage the case for a completed bull market correction down from $6.108," said Brian LaRose, an analyst with United-ICAP. "Fail to turn higher from the $4.021 area and the various wave count patterns down...from $6.108 will become our primary targets." His data shows 0.618 retracement cuts at $3.411, 0.7862 cuts at $3.077, and full retracement cuts at $2.653.
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