As weather forecasts calling for cold began to pop up, natural gas futures on Friday were able to overlook the bearish 61 Bcf storage injection report from Thursday and explore higher price levels. The prompt month peaked at $11.840 before settling at $11.712, up 33.2 cents for the day and 29.7 cents higher than the previous Friday’s close.
Petroleum futures remained on the bearish track Friday, with December crude pushing even further beneath $60/bbl to close at $57.53/bbl, down 27 cents. December unleaded gasoline and December heating oil settled lower by 2.18 cents and 2.00 cents, respectively, at $1.4850/gallon and $1.7235/gallon.
Cold forecasts in recent days from AccuWeather.com and Weather 2000 really seemed to play into trading Friday. Next week an icy blast from Canada is forecast to slash through a broad area from the northern Plains to the Great Lakes, according to AccuWeather.com. The forecasting firm said a high of 60 Friday in Chicago is forecast to drop to 42 by Wednesday and Pittsburgh’s 50-degree high Friday is predicted to fall to 43 by Wednesday.
Likewise, Weather 2000 said Thursday that Pittsburgh residents enjoying warm 70-degree southerly breezes on Thursday were rudely awakened Friday morning with upper 30s and a rain/snow mix courtesy of lake effect showers. “This cold air mass sweeping across the Northeast is yet another preview of the more frequent and more intense cold waves that are set to chip away at [the] current warm and benign Indian Summer pattern,” Weather 2000 said, noting that the next wave — which his expected to arrive the middle of this week — is a comparative doozy, delivering cold air over a much wider portion of the U.S.
“I think some of the weather forecasts calling for cold certainly spooked natural gas Friday,” said Tim Evans, an analyst with IFR Energy Services. “To me, the market is pretty clearly bearish. We have above-average storage and above-average storage injections.” With storage above the five-year average and the five-year average price at $5.500, what is the prompt month futures doing at double the five-year average price, he asked.
“I think we are probably going to see that even with cooler temperatures for portions of the country, the overall demand level is still not going to result in any great withdrawal from storage,” Evans said. He added that natural gas futures could still fall “significantly lower” because futures are trading at such a premium to the cash market. However, he noted that bulls are still lurking.
“There are certainly people who are interested in having the price remain strong. There has been a whole flow of open interest into the Nymex market over the past year,” he said. “Nymex’s total open interest in natural gas is up about 40% from where it was at this time last year, so it is pretty clear to me that this is what has been driving prices to these elevated levels, not physical shortages. At some point, some portion of this brain-trust is going to figure out that the easier money to be made is on the short side. That’s basically what the cash market has been hinting at.”
He noted that in the cash market, “I can buy cash and sell the nearby futures at a big-time premium, but that uncovers two problems. First, I would have to find a place to park the gas in storage, which isn’t really easy to do right now, and then I might be stuck with that gas through this season and into the next heating season,” he said.
On Thursday, market technicians saw the bullish case as rapidly losing steam. “After three consecutive days of failed attempts to close above the pivotal $11.900 resistance, Thursday fell to a new low close on the move down from the recent high of $14.750,” noted Walter Zimmerman of United Energy. The $11.900 price is significant in that it represents the important (upward) 23.6% retracement of the move from the Oct. 5 high of $14.750 to the Nov. 7 low of $11.030. “This close seriously weakens any case for another new high later this year and to reiterate a decisive close below $10.390 voids any case for another new high,” he said.
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