February natural gas fell nearly 4 cents Friday in light holiday-flavored trading to settle at its lowest point in more than two years. At the close February had retreated 3.8 cents to $2.989 and March put in an equally uninspired performance, losing 3.9 cents to $3.016. February crude oil fell 82 cents to $98.83/bbl.
The February contract’s settlement at $2.989 marks the first close under $3 since the October 2009 contract settled at $2.960 back on Sept. 11, 2009. All may not be lost for the bulls, however, because if 2009 is any guidance, futures prices in late 2009 were on a rocket-like trajectory that took them from a low of $2.409 made on Sept. 4 to a high of $6.108 on Jan. 7, 2010.
Longer term, supply trends were mixed. Baker Hughes reported a small increase in active gas-directed rigs, but the number of operating horizontal rigs decreased. For the week ended Dec. 29, gas rigs rose by seven to 809, and horizontal rigs fell by five to 1,167. Total U.S. rigs eased one to 2,007.
The extended holiday weekend may seem like an eternity to traders seeking weather guidance, and all indications point to extremely warm temperatures for eastern and Midwest points. In its morning six- to 10-day outlook WSI Corp. of Andover, MA, predicts that “temperatures are expected to average as much as 12-22 degrees above normal during the period in most of the north-central U.S.” It said Friday’s forecast is warmer than Thursday’s outlook in the Midwest while slightly colder in many parts of the West.
Risks to the forecast include temperatures running “colder than forecast in the northeastern U.S., at least early in the period, as models may be ejecting the trough from the East Coast too quickly. Meanwhile, readings could trend warmer across the central U.S. as warmth from the de-amplifying positive PNA [Pacific North American] ridge spreads eastward by late next week.”
The warm temperatures are likely to translate into an ever-widening storage surplus. “Bearish fundamental balances are undeniable as each successive storage report of the past couple of months has seen an expansion in the surplus against both last year and the averages,” said Jim Ritterbusch of Ritterbusch and Associates. “[Thursday’s] stretch against last year was particularly pronounced as the excess widened by a whopping 62 Bcf. And although the expansion against the five-year average was smaller at 41 Bcf, a supply surplus against a year ago is substantial at some 428 Bcf.
“Within such an oversupplied market, potential long hedgers have backed away in anticipation of even lower values while commercials looking to hedge off inventory or future production are sitting tight with little incentive to cover positions.”
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