Regrouping after the 17.7-cent loss on Monday, August natural gas futures traded within the $5.965-6.025 range before settling at $5.989 Tuesday, up 3.2 cents in the uneventful session. As the soon-to-be prompt month, September futures climbed 2.6 cents to close at $6.022.
“Tuesday turned out to be a very quiet day,” said George Leide of Rafferty Technical Research in New York. “Crude was very strong, pushing that $42 level again, but it hasn’t been able to get above that $42.50 level.” Despite crude prices currently remaining lofty, natural gas appears to have put some distance in the relationship.
“Right now I am neutral to bearish on natural gas,” he said. “The next leg down should take us back down to test $5.75.”
Leide said trading on Monday was the “key” to the market’s intentions. “We left a $6.08 to $6.10 gap [Monday],” he said. “Unless we trade back above $6.10, this market is going to work lower.”
Already looking to September futures, Tim Evans of IFR Energy Services said he believes that the contract has steadied itself off a minor new low at $5.97, adding that additional potential support might lie in the $5.90 area. “Past that point, however, and the $5.80 low from July 19 could come under attack, with new lows probing spot support expected first in the $5.70 area and then again at $5.50, just ahead of the $5.49 weekly uptrend support dating back to the January 2002 bottom,” Evans said. “On the upside, we see minor resistance now in the $6.09-6.12 area as a pivot back toward the $6.245 peak from last Thursday.”
Evans noted that the natural gas futures complex has taken some encouragement from forecasts for warmer temperatures across much of the continental U.S., but just about anything would look supportive in comparison with current conditions.
As an example, Evans pointed out that Austin, TX posted a new record low of 68 degrees Tuesday morning, while New York City was to have a high on the day of 75 degrees. “The way it’s looking, a 65-75 Bcf injection to storage for last week could be followed by something more like 85 or 90 Bcf next time around,” he said. “These refills compare with five-year average injections for the same weeks of 59 Bcf and 53 Bcf respectively. There may well be some support from heat and hurricanes to follow in August, but natural gas isn’t done riding out the more certain bearish fundamentals, and the bounce, when it comes, may well be from a lower level.”
In addition to the low 59 Bcf build five-year average, this week’s storage report for the week ended July 23 will also go up against the 81 Bcf build from the same week last year.
Citigroup’s Kyle Cooper said his final estimate for this week’s EIA report looks for a build of between 64 and 74 Bcf. “Injections must trail year-ago levels by 15 Bcf/week to eliminate the storage surplus and leave inventories at 3,187 Bcf in early November,” Cooper said. “If inventory injections average just 96% of the five-year average, storage levels reach 3,100 bcf by the end of October.” He noted that a build in his range would again be considered bearish from a temperature-adjusted perspective.
The derivatives auction based on the EIA’s weekly natural gas storage report posted indicative prices on where the auction will open this week at 72.4038 Bcf. The auction runs from 3-4 p.m. (ET) on Wednesday, the day before EIA announces the net amount injected or withdrawn from storage during the previous week.
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