December natural gas futures rocketed higher Wednesday, propelled in part by a supply-driven leap in oil prices. Risk managers see a short-term advance, but are also preparing to sell as prices become more attractive. December futures jumped 30.9 cents to settle at $8.330 and the January contract added 30.6 cents to finish the session at $8.660. December crude oil soared $4.15 to $94.53 after trading at an intraday record high $94.70.
Petroleum traders were primed for a big move in oil prices with the 10:30 a.m. EDT release of petroleum inventory figures. Prior to the release of the report consensus estimates centered around a build of about 1 million barrels in crude oil, but the reported draw of 3.9 million barrels was a definite surprise.
Compounding the bullish fervor was a late-session announcement of a quarter-point cut in the federal funds rate to 4.5%. The cut may aid a beleaguered housing sector but it weakens the dollar and increases the appeal of oil (and by extension natural gas) as an alternative investment. A weaker dollar also undermines the value of crude for its producers since the commodity is priced in the U.S. currency, putting upward pressure on crude prices as producers move to raise prices to limit the impact of the weak dollar.
“I’m a believer in this rise in natural gas prices,” said an Oklahoma banker and risk manager. He said that if the December futures can stay above $8.20 resistance, it can move still higher. “I think there is a good shot at $9, but as it gets closer to $8.75 I would seriously consider selling.”
He added that his market interpretation was based on an Elliott Wave analysis, but “I’m a big believer in seasonal patterns, and normally you have a rally either from late August to early September or late November to early December, and we are having just such a pre-season rally,” he said.
The banker was careful to distance himself from a more fundamental perspective. “I’m not saying that this is weather-related or natural gas is following crude oil higher, but I think natural gas is in a seasonal up-move and there is room for prices to advance further.”
Seasonal advance or not, traders will be taking a close look at Thursday’s 10:30 a.m. release of natural gas inventory figures. A Reuters survey estimated a 58 Bcf gain in working gas inventories and a Bloomberg survey of eight analysts revealed an identical 58 Bcf estimate, which was also the median of the survey sample. Last year 5 Bcf was withdrawn from storage and the five-year average is a build of 26 Bcf. Supplies currently stand at 3,443 Bcf and such an addition to supply would easily carry stocks past the 3,458 Bcf record set last year.
Near-term weather forecasts are also aiding the cause of the bulls. In his six- to 10-day forecast meteorologist John Dee calls for a surge of cold air expected to dive into the north-central U.S. “Temperatures could fall to below average across much of the nation next week, with the exceptions of the southwest U.S., which would see average to slightly above-average temperatures occur,” he said in a note to clients.
Other traders are more focused on weather rather than seasonal analyses. “This support appears related to increasingly widespread forecasts for a cold snap across most of the eastern half of the nation within the six- to 10-day time zone with some outlooks extending a colder outlook into the 11-to 15-day window,” said Jim Ritterbusch of Ritterbusch and Associates.
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