July natural gas is set to open unchanged Tuesday morning at $4.45 as traders sense at least a temporary end to speculative selling and weather forecasts turn slightly warmer. Overnight oil markets firmed.
Following Monday's July 8-cent pounding, analysts see a conflict between short-term selling and longer-term fundamentals. "[Monday's] selling sustained a sharp one-week price decline that saw values advance to as high as $4.88 last Monday. Other than another 3-4 Bcf bearish miss in Thursday's EIA report, we haven't seen a major change in the balances during the past seven days," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday.
"Cooling degree days during the past month haven't varied significantly from normal trends. Furthermore, weekend updates to the one-to two-week views appear skewed towards the supportive side with above normal trends widely expected next week and into the second week of July. Nonetheless, large speculative entities continue to press the short side of this market assertively, and it would appear that last Thursday's uptrend line violation that extended back to mid-May may have provided the trigger in this regard. The significance of this technical development was seen [Monday] when the early rally failed right at the trend line break. Short-term bearish technical factors can easily outweigh long-term bullish fundamental forces in any market, and this appears to be the case with the nearby gas futures. While our longer-term bullish view in quest of $4.85 remains intact, we will suggest caution in approaching the long side given negligible chart support until the $4.40 area."
Ritterbusch is optimistic that "this market could snap back quickly and dramatically as it has done on two occasions within the past month. Any existing longs should be prepared to risk below the $4.40 level and we would prefer to add on strength to above Friday's highs rather than attempt to pick a bottom to the past week's price plunge."
Forecasters see temperatures warming compared to Monday. In its morning six- to 10-day forecast, WSI Corp. said, "[Tuesday's] forecast has trended warmer in the west and south central while cooler in the north central U.S. late in the period. Forecast confidence is roughly average though falters a bit late in the period.
"Several ECM [European model] ensemble members, including the operational, are quite aggressive to drive an upper-level low into the plains/Midwest late in the period with much below normal temps. Preference was placed in a more benign frontal passage although temps were trimmed back here compared to [Monday] to account for the risk, especially on day nine."
Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile said he expects the market to test Monday's value area at $4.483 to $4.461 before moving on and testing $4.546 to $4.524. "Eventually" he envisions a test of $4.682 to $4.616.
Saal added that he prefers to "use Market Profile chart analysis over pure fundamental analysis because it's much more efficient at revealing information. Market Profile analyzes the market from the 'inside-out' at the transaction level by observing trading behavior of only participants. Pure fundamental analysis views the market from the 'outside-in' making ad hoc observations about what 'ought to be' (possibly invoking confirmation bias)."
In overnight Globex trading August crude oil gained a penny to $106.18/bbl and August RBOB gasoline rose fractionally to $3.0809/gal.