Probing below well identified support at $8.200 in Wednesday morning trade triggered an energetic round of buying in September natural gas futures that lasted well into the afternoon. The front-month contract peaked at $8.736 just after 1 p.m. EDT before sliding to close at $8.456, which was still good for a 12.6-cent gain from Tuesday’s regular session finish.
After opening Wednesday’s session at $8.320, September gas plummeted to a low of $8.050 just after 10 a.m. EDT. However, the breach of $8.200 brought on the rally that followed.
September crude also jumped significantly on Wednesday by gaining $2.99/bbl to close at $116/bbl, while September heating oil added 5.36 cents to finish at $3.1317/gallon. Some industry experts have observed recently that it appears that natural gas might be the only energy market with its head on straight.
“If you look at the energies on a relative basis, the natural gas market — which under most circumstances is viewed as the wild child — is acting somewhat rational. The petroleum sector has had the real crazy markets over the past few months,” said Steve Blair, a broker with Rafferty Technical Research in New York. “Natural gas is probably the only one out of the four markets [natural gas, crude, heating oil and gasoline] that has kept any semblance of reality toward economics. I would say that crude, gasoline and heating oil are still overpriced while natural gas has settled back into a more comfortable price level.”
Two tropical systems in the Atlantic have caught traders’ attention, but paths and landfall predictions are still premature. One of the low-pressure systems is currently stuck in a wind shear zone, which opposes the strengthening of the system. However, once it gets past that zone, things could change drastically, according to John Kocet, a senior meteorologist with AccuWeather.com. “Within 48 hours the tropical low shown here will leave the shear zone and get into a much more favorable environment,” he said Wednesday afternoon. “If the track is mainly over water… the storm will rapidly intensify.”
Neither system — whether they strengthen or not — is expected to impact U.S. interests until early next week.
Traders don’t seem too bullish on the weather patterns. “No one has been talking about the two systems in the Atlantic. We have all heard about the ones that could develop but haven’t developed. It’s something to talk about, and if you are bullish, that’s what you talk about and you want to put that out there,” said a New York broker.
Market technicians who use candlestick patterns to help determine whether natural gas futures have a chance of rebounding from a deeply oversold condition see little upside potential. We “expected a neutral congestion day for Tuesday. Got a textbook, neutral, spinning top, an inside day, and one of the narrowest range days in recent months,” said Walter Zimmerman of United Energy. He added that Monday and Tuesday were both spinning tops that followed a major decline. “This is classic ‘I’ve fallen and can’t get up’ type price action and as such suggests a bear market rest stop in a continuing decline. In the bigger picture our nearest candidate for major support is still $7.735 as 0.618 of the entire $4.050 to $13.694 advance,” he said in a Wednesday morning note to clients.
In candlestick parlance a spinning top has a small body and extended “shadows” above and below the body.
Turning attention to Wednesday’s natural gas storage report from the Energy Information Administration, it appears that much of the industry is looking for an injection for the week ended Aug. 8 in the 45-60 Bcf area. A Reuters survey of 23 industry players produced injection estimates that ranged from 44 to 63 Bcf with an average expectation of 53 Bcf. Golden, CO-based Bentek Energy said its flow model indicates an injection of 45 Bcf, bringing stocks 11.9% below the five-year high and 0.4% below the five-year average. The research and analysis firm envisions the report revealing a 49 Bcf injection in the East region, a 1 Bcf injection in the West region and a 5 Bcf withdrawal from the Producing region.
The number revealed Thursday morning at 10:35 a.m. EDT will be compared to last year’s 27 Bcf injection for the week and the five-year average build for the week of 50 Bcf.
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