Coming into expiration Monday, January natural gas futures continued the trend of gains from Christmas week by punching above the psychological $6 resistance line to go off the board at $6.136, up 31 cents from Friday’s close. Taking over as the new front-month contract, February futures also breached $6 on Monday to close at $6.084, up 27.2 cents from Friday’s session.
“It was a pretty wild expiration, but you probably have to take it with a grain of salt due to the holiday, the proximity to the end of the year and the resulting light volumes,” said Steve Blair, a broker with Rafferty Technical Research in New York. “A lot of people did their year-end business ahead of the holidays and won’t pick back up again until next year. There has definitely been less liquidity in the market over the past few trading sessions.
“Shifting weather forecasts also probably had some influence in pushing futures higher Monday. Looking out eight to 14 days, it looks like much of the country is expected to be in the blue, according to the National Weather Service. Natural gas was also probably influenced a bit by crude, which rebounded Monday as Middle East fighting flared up.” February crude climbed $2.31 to $40.02/bbl.
“Now that January expiration is out of the way, it will be interesting to see how the natural gas futures market reacts Tuesday when we don’t have people with positions to get out of. I’m not bearish to the point where I think we are going to see sub-$5, but I’m also not sure we have seen the last handle with a five in front of it either,” Blair said. “If things warm up and we see smallish storage withdrawals, we could get back under $6, but I don’t think we’ll see low $5s again.”
Citi Futures Perspective analyst Tim Evans said cold is on the way. “The natural gas market is pressing the upside…supported by a forecast for colder-than-normal temperatures east of the Rockies in the 11- to 15-day period. We see this forecast as particularly constructive since it catches at least some segment of the market relying on longer-term forecasts that had called for a warm January and compares with five-year average temperatures that were warmer than normal. This creates a likely low flow of storage withdrawals that will be greater than the five-year average, with a year-on-five-year average storage deficit likely to emerge in early to mid January.”
Evans said Frontier Weather’s 11- to 15-day forecast sees below-normal temperatures east of the Rockies, with some variances seen as much as 12-16 degrees F colder than normal.
More near term, it appears the East, which saw mostly mild temperatures over the Christmas holiday, will see another cold blast.
“A marked easing of the cold culminated in a rash of record high temperatures late last week. Yet as of Monday it was still comparatively mild right from the Great Plains to the Atlantic Seaboard,” said Jim Andrews, a meteorologist with AccuWeather.com. “But a storm tracking quickly over the northern Plains to the New England coast during the first half of the week will jolt a wide swath of the nation with a dose of wintry reality. On Tuesday the cold shot will spread over the northern half of the Plains and into the upper Mississippi River Valley. On Wednesday the chill will blast its way from the Great Lakes into the Mid-Atlantic and New England.”
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