Despite bearish storage data and the formation of a tropical storm in the northwestern Caribbean Sea Wednesday afternoon, natural gas futures shuffled mostly sideways Thursday as neither bull nor bear was willing to propel the market very much in either direction. After being held to a relatively-tight, 15-cent trading range, the December contract finished a tenth of a cent lower at $3.29. Estimated volume was 73,349 contracts.
According to the National Hurricane Center, Michelle became the 13th named tropical storm of the Atlantic hurricane season late Wednesday and by last night had strengthened to near hurricane strength with sustained winds of 65 mph. The storm is expected to continue to move to the north-northwest at 5 mph, making a turn to the east either over Cuba or a farther north, in which case the storm would likely make landfall in either central or southern Florida. In either event, the chance that the storm would continue on its present track long enough to impact offshore gas rigs in the northern Gulf of Mexico seemed unlikely as of press time Thursday.
For many traders, Thursday’s relatively low price volatility was a welcome relief, following a month of choppy trading activity that culminated in a see-saw price battle earlier this week. Market watchers were surprised when the November contract bucked the bearish duo of weak demand and plentiful supply to rally 16.1 cents to $3.202 Monday. However, December was slow out of the gate on its first day in the limelight Tuesday and by the closing bell had retraced all of its advances from the day before. The American Gas Association injected some life back into bulls Wednesday, reporting that 23 Bcf of working gas had been injected into underground storage facilities last week.
However, in contrast to the first three days of the work week, Thursday left no clear winners. Instead, traders were forced to glean what they could from the quiet trading session. For bulls, the market’s ability to overcome a negative open and battle back to unchanged was constructive, potentially paving the way for further gains today. However, Tim Evans of IFR Pegasus in New York believes that the rally is starting to show its age with fundamentals pointing to lower price levels. “Total storage of 3,090 Bcf is still more than adequate for the coming winter and prices are well above the levels from late 1998 and early 1999, the last time storage was at a comparable level.”
In the short term, however, Evans believes that the next sell signal will come from a break of technical support, which will trigger a meaningful downside reversal in the larger trend. “[Wednesday’s] $3.19 low is a candidate for that point… We see nearby residual support to $3.16 or so, with the steepest uptrend support at $3.08 and the $3.06 low from last Thursday as potential spoilers to an attempt at taking December natural gas lower,” he said.
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