October natural gas is expected to open 3 cents lower Friday morning at $3.88 as analysts see both the fundamental and technical picture having turned noticeably bearish in the short term. Overnight oil markets slumped.
Analysts interpreted Thursday's double-digit drop as characteristic of a market environment in which sellers are poised to strike at the drop of a hat. "[Thursday's] outsized response to a storage miss of only 1 Bcf highlights an extremely heavy trading environment in which large speculative entities appeared poised to re-establish short holdings on even a bullish injection miss of miniscule proportions," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients.
"Regardless, [Thursday's] 90 Bcf supply build narrowed the surplus against average levels by almost 20 Bcf. Additionally, our fundamental model in which the deficit against five-year averages will be reduced by about 1% per week into November still appears intact as the shortfall against the averages fell to 13% with [Thursday's] number. Additionally, the market is being forced to look ahead to next week when another injection at least as large as today's increase could again develop in the process of cutting the shortfall by another sizable chunk.
"At least two more strong storage increases lie ahead and will be available to contain occasional price rallies. But while our expected price decline to the $3.75 level was reinforced by today's 2.5% selloff, we are tweaking our market view in the direction of a sideways/wide-swinging trade through the rest of this fall, basically a continuation of the chart picture that has been established during the past couple of months. So while we still possess high confidence that nearby futures will achieve our targeted $3.75 area, we will also be looking to reverse into a bullish stance on this implied additional 15 cent price decline."
Technical analysts see a retest of late-July lows as close to a done deal. "Failure yet again," said Brian LaRose, an analyst with United ICAP after the market closed. "With natgas turning lower from the $4.028-4.029-4.040-4.051 zone Thursday, it very much looks like a corrective ABC advance off the $3.761 low has ended. Assuming $4.101 to $3.761 was Wave a, $3.761 to $4.040 was Wave b, a Wave c would target $3.700. [We] see only one way to avoid a retest of the $3.724 low, carve out an immediate bottom from the $3.883 vicinity."
In overnight Globex trading October crude oil fell 35 cents to $92.72/bbl and October RBOB gasoline eased a penny to $2.5533/gal.