Prompt-month natural gas futures plunged to the lowest point in 28 months and lowest winter-month point in 10 years Wednesday as unrelenting warmer-than-normal forecasts across important eastern and Midwest energy markets forced traders to anticipate continued growth in an already burdensome storage surplus. At the close of trading February settled down 16.7 cents at $2.774 and March had fallen 16.7 cents as well to $2.803. February crude oil shed $1.37 to $100.87/bbl.
While winter-month futures haven’t traded this low since 2002, bulls may be able to find some solace. Even as February’s low Wednesday of $2.741 hasn’t been seen since Sept. 10, 2009 when the October contract posted a low of $2.740, prices from there did manage a rocket-like advance.
From a low of $2.409 on Sept. 4, 2009 spot futures surged to a high of $6.108 on Jan. 7, 2010. Another factor pointing to a possible end to the price decline is a long-term trend line in place that may act as technical support and stem further selling. Technical analyst Steve Blair of Rafferty Technical Research in New York noted that the 20-year trend line currently projects at about $2.65 and suggests it is likely to hold. “There’s a very small risk [for lower prices], for that trend line has held a number of times over the last 20 years,” he said.
That trend line may get a test when the Energy Information Administration (EIA) releases its weekly inventory figures at 10:30 a.m. EST Thursday. The data has often led to volatile market swings and proved to be the major price driver for the week.
Estimates for the weekly withdrawal are looking to be well below historical averages. Last year at this time 137 Bcf was withdrawn and the five-year average is at 128 Bcf. A Reuters poll of 22 analysts revealed a sample mean of 89 Bcf with a range from 72 Bcf to 103 Bcf. Citi Futures Perspective forecasts a pull of 72 Bcf, and industry consultant Bentek Energy utilizing its North American flow model is looking for a decline of 96 Bcf.
Longer-term weather forecasts turned warmer. In its latest 11- to 15-day outlook Commodity Weather Group depicted a broad ridge of above-normal temperatures extending from Arizona to Pennsylvania and New York. “The pattern over North America over the next two weeks is expected to be extremely volatile. We first see strong ridging up toward the Bering Sea/Alaska that helps generate and distribute a massive Arctic air mass to Canada next week. Some of this air scrapes the U.S. at times next week, including the Midwest and even East Coast briefly,” said Matt Rogers, president of the firm.
“But the models are in strong agreement that the situation will change quickly as we transition into the 11-15 day. A strong Pacific flow returns to dominate the period as the displaced polar vortex in Canada bounces back north and west. A Gulf of Alaska-area low pressure sets up shop to send a ‘fire hose’ Pacific jet across the U.S. with very warm results again.”
Traders looking beyond abundant gas in storage and mild weather suggest that longer term the natural gas market may be a buy. “As far as long-term trades go, this looks to be as good a potential buy as any commodity,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm.
Beutel readily admits the bearish forces in play and said, “At least once a week traders are reminded that there is an extraordinary amount of natural gas available in storage. Usually once or twice a week, traders are reminded how oversold prices are. So what we tend to see here is a market that lurches between the two. At some point we will see prices at an equilibrium level. That could come at any time, curiously enough.
“In the meantime, we should expect more of the same. Prices can rally 8-10 cents, or 12-15 cents in an outside circumstance, but then they are just as likely to sell off again. When they decline, they are likely to get oversold; when they rally, they are likely to remind traders of the huge overhang of natural gas in storage. Prices decline, get oversold and start the process over again,” he said in a morning note to clients.
Â©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2023 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |