After banging on the psychological $8 resistance price level over the previous five sessions to no avail, the sixth attempt proved to be the charm as February natural gas futures punched upward to a $8.180 high before closing Wednesday’s regular session at $8.099, good for a 13.2-cent gain on the day.
A number of market experts pinned the contract’s stubborn strength as of late to forecasts of coming cold and predictions of a significant withdrawal from natural gas storage for the week ended Jan. 4.
“The natural gas market has popped to a new higher level on further short-covering as temperatures are set to drop in the eastern U.S. from well above normal currently to below normal in the six- to 10-day and the 11- to 15-day forecasts,” said Tim Evans, an analyst with Citigroup in New York. “The potential for a big draw in Thursday’s [Department of Energy] storage report may also be motivating some of the buying. Our $8.120 profit objective on February natural gas has been reached and we’re happy to move back to the sidelines as we foresee some possible chop ahead of and behind the storage report.”
Market technicians see the current market strength setting up an important test of the market’s ability to move even higher. Because the market on Wednesday broke above the 0.618 retracement of the $8.712 (early November high) to $6.838 decline at the $8.000 level, a test of the 0.7862 retracement at $8.205 to $8.310 is likely next. “We rate this $8.205-8.310 [as] critical resistance,” said Walter Zimmerman of United Energy. “A decisive break above this zone would open the door for a break above the $8.712 high from [Nov. 2].”
Natural gas bulls may want to focus on the upcoming six- to 10-day weather outlook. MDA EarthSat predicts below-normal temperature accumulations for much of the South. “The best chances for seeing more persistent and stronger cold remains across the Southeast quarter of the nation,” said MDA EarthSat meteorologist Matt Rogers. He added that in the West, high pressure is again anchored across the Great Basin, keeping cooler weather entrenched there.
Taking a closer look at the Energy Information Administration’s storage report for the week ended Jan. 4, the industry’s estimates are all looking for a return to a healthy triple-digit withdrawal. A Reuters survey of 21 estimates produced an average draw expectation of 155 Bcf, while the range of withdrawal expectations spanned 120-173 Bcf.
Golden, CO-based Bentek Energy’s flow model indicates a withdrawal of 176 Bcf, which would bring stocks 9.5% below the five-year high (last year) and 4.4% above the five-year average. The flow model sees a 100 Bcf withdrawal in the East region, a 53 Bcf pull in the Producing region and 23 Bcf removed from the West region. According to the research and analysis firm’s calculations, storage fill nationwide decreased from 79.3% to 75% for the week.
The number reported at 10:30 a.m. EST Thursday morning is likely to dwarf last year’s adjusted withdrawal of 49 Bcf and the five-year average withdrawal of 71 Bcf.
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