March natural gas futures rose in modest trading Tuesday as short-term traders anticipated some additional short-covering ahead of Thursday's inventory report and longer-term analysts suggest that selling has run its course and recommend purchases of the April contact on dips. At the closing bell March natural gas was up 5.1 cents to $3.976 and April had gained 3.9 cents to $4.030. March crude oil fell 49 cents to $84.32/bbl.
"I'm looking for a bounce up to $4.05 to $4.10 over the next day or two, but when the [Energy Information Administration inventory] number comes out on Thursday, I think we'll trade lower from there," said a New York floor trader.
He added that the market had fallen a long way, from the $4.80s, and "I think you are seeing a little covering of short positions and some outright buying. I'm looking for a range of $3.90 to $4.10. There are a lot of people just watching the market and it doesn't look like there are any great numbers of buyers down below to start entering the market on a scale-in basis. I think if the number that comes out on Thursday isn't enough to satisfy the bulls, traders will hit it [sell] pretty hard down to about $3.60."
Kyle Cooper of IAF Advisors in Houston forecasts a pull of 239 Bcf for the week ended Feb. 11, and if correct, it would be the second highest draw of the season, just below the 243 Bcf withdrawn for the week ended Jan. 14. Citi Futures Perspective analyst Tim Evans is expecting a 215 Bcf draw.
The number revealed Thursday morning at 10:30 a.m. EST will also be compared to last year's date-adjusted 190 Bcf withdrawal and the five-year average withdrawal for the week of 150 Bcf.
Top analysts see the selling as having run its course. "With the weather outlook taking on a more price-neutral appearance at this late stage of the heavy usage cycle, trading participants will be looking for fresh fundamental reasons to maintain a selling approach to this market and will be finding limited rationale," said Jim Ritterbusch of Ritterbusch and Associates. "As a result, we feel that the sharp 80-90 cent price down move of the past three weeks has run its course following yesterday's near miss of the $3.85 support level. We have shifted off of a bearish stance and into a bullish posture in which we favor purchases of the April contract on pullbacks to around the $3.95 area," he said in a Tuesday afternoon note to clients.
Weather forecasts have moderated, and in the short run the outlook is for substantially less heating requirements in populous eastern and Midwest energy markets. The National Weather Service (NWS) forecasts that for the week ending Feb. 19 heating degree days (HDD) for New England are expected to reach just 209, 56 fewer than normal, and New York, New Jersey and Pennsylvania are expected to see 189 HDD, or 56 below their seasonal accumulation. The Midwest from Ohio to Wisconsin is forecast to have 196 HDD, or 68 fewer than normal.
By contrast for the week ended Feb. 12 New England tallied 288 HDD, or 13 more than normal; the Mid-Atlantic saw 274 HDD, or 19 more than normal; and the Midwest shivered under 332 HDD, or 54 more than normal.
Analysts suspect that the market may have gotten ahead of itself in terms of projecting milder temperatures into upcoming reports on storage levels. "Traders are starting to calculate the impact of milder temperatures on future Energy Information Administration underground storage reports, and it seems that they have already extrapolated the impact of future builds on storage figures," said Peter Beutel, president of Cameron Hanover. "They seem to have rebuilt storage to levels existing before December, or prices would not be as low as they are already. We actually believe that traders and prices have gotten ahead of themselves here. We have not added a single molecule back into storage yet."
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