With most market participants having finished their December natural gas futures business by last week, the prompt-month contract had a mostly uneventful ride into expiration on Tuesday. December natural gas traded between $4.361 and $4.610 on low volume before going off the board at $4.486, up 1.3 cents from Monday’s finish. The January contract closed the day at $4.766, down 2.5 cents.
“It was ‘much ado about nothing’ for the December contract on Tuesday,” said Steve Blair, a broker with Rafferty Technical Research in New York. “Just like Monday there was not a whole lot of business being done in the contract. Right before noon [EST] the volume for December was under 10,000 while the volume in the January contract was near 35,000. I think this shows that most people took care of their December position early due to the holiday this week.”
The broker noted that the once-dreaded “expiration day” is not like it used to be. “Expirations in natural gas futures are no longer as wild and volatile as they once were,” Blair told NGI. “A lot of people are doing EFSs [exchange for swaps] now, so we don’t have the expirations with a tremendous amount of volume anymore. There are no longer tens of thousands of moving pieces on a contract’s last day.”
Discussing the now front-month January contract, Blair noted that when December made the last rally up on the day, the rest of the months did not follow. “Looking ahead, I would expect some cold weather to arrive during the January contract’s reign. If we do get some significant cold in here, the January contract will likely be able to test the move’s high of $5.318 from back in October. The first stretch of cold will trigger a price reaction, but the extent of the price move higher will all depend on whether the cold lasts.”
Citi Futures Perspective’s Tim Evans said he is concerned that some warmer temperature forecasts could be imposing some weakness on natural gas futures values. “We also continue to worry that the premium January futures may still have some downside risk relative to where December [was] trading and the even weaker cash values,” he said. “[Tuesday’s] trade tends to reinforce the idea that natural gas needs a more significant forecast for cold temperatures in order to run back to the upside with any confidence.”
Taking into account the Thursday holiday for Thanksgiving, the Energy Information Administration (EIA) reported that the release of fresh storage data will be moved up one day. Data for the week ending Nov. 20 will be released at noon EST on Wednesday.
Going into the report, most industry expectations are looking for a single-digit Bcf injection. While noting that Wednesday’s storage report will be compared to a 54 Bcf pull for the similar week last year and the five-year average draw of 22 Bcf, Evans said he is expecting the EIA to reveal a 5 Bcf addition.
Forecasts from the National Weather Service (NWS) show below-normal heating requirements as the end of the month approaches. For the week ending Nov. 28, NWS predicts that New England will see 150 heating degree days (HDD), or 42 fewer than normal, and New York, New Jersey and Pennsylvania will endure 141 HDD, or 37 fewer than normal. The Midwest from Ohio to Wisconsin is forecast to receive 156 HDD, or 47 fewer than normal.
This week’s forecast continues a pattern of less-than-normal heating requirements across major energy markets. For the week ending Nov. 21, actual HDD data came in lower as well. New England had 44 fewer than normal at 130 HDD, and the Mid-Atlantic states had 110 HDD, or 50 below normal. The Midwest had 133 HDD, or 50 fewer than normal.
Economy watchers — and therefore bulls — got a boost with the 8:30 a.m. EST release of third quarter gross domestic product (GDP) estimates. The Commerce Department reported an estimated 2.8% gain, right in line with market expectations. If the estimate holds, the third quarter will mark the first increase in GDP since the second quarter of 2008.
Gains in third quarter GDP notwithstanding, analysts do not see an immediate translation to increased industrial use of natural gas. “Natural gas demand recovery within the industrial sector will be proceeding at a slower rate than previously expected. At the same time, production strategies amongst some major companies appear to be leaning toward a stronger pace of output than would be implied by the current relatively low pricing environment,” said Jim Ritterbusch of Ritterbusch and Associates. Ritterbusch is expecting the supply-demand balance to “remain heavily skewed in a bearish direction, even allowing for a colder-than-normal winter.”
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