Sticking to the recent script of back-and-forth moves in natural gas futures, the August contract followed up Thursday’s 23.8-cent increase with a drop of 16.7 cents to close Friday’s regular session at $4.687.
Traders eager to add an extra day off to the three-day holiday weekend did most of their trading early Friday, which is when futures recorded most of the decline. With the recent heat wave vacating much of the country and Hurricane Alex sparing the Gulf of Mexico production areas, some market watchers note that bulls at this point lack the ammo to push values back above $5.
“The futures market did some moving early on Friday but basically died down in the afternoon as desks emptied,” said Gene McGillian, an analyst with Tradition Energy. “Basically, Thursday’s rally was probably the pre-weekend ‘get out of your short positions’ routine. However, on Friday the market went right back down to $4.600. We had some disappointing economic news, which likely helped with the falloff. We’re basically stuck within a range between $4.500 and $5.200.”
McGillian told NGI he expects futures to stay in that lower end of the range unless fundamentals intercede. “Without calls for sustained heat or any credible scares in the tropics, we’re going to be butting up against that $4.500 level for the near term.”
While the bulls could latch onto the fact that the storage refill cycle is falling off of last year’s pace (see Daily GPI, July 2), the analyst noted it is not as supportive to values as one might think. “We’re within 1% of last year’s working gas level, and you have to remember that last year was a record storage level year,” he said. “Also, all the signs point to shale production continuing to proceed as expected. If it wasn’t for record cooling degree days for the month of June, I think that the market would not have been able to garner enough strength to force some of the shorts out on the recent run to $5.200. I think the market is reflecting the uncertain economic picture that the whole energy complex is fighting with and the near-record levels of gas already in storage.”
Financial and energy bulls were somewhat disappointed with the 8:30 a.m. EDT Friday release of June employment figures. The Labor Department reported that nonfarm payrolls fell by 125,000, slightly less than the 130,000 jobs expected because of a reduction in the number of workers hired for the census, according to a Bloomberg report. The unemployment rate fell to 9.5% from 9.7%, but disappointment surfaced in the number of private payroll jobs. According to the Labor Department, 83,000 private jobs were added, but expectations were for a gain of 105,000. September Standard and Poor’s Stock Index Futures fell 3 points immediately after the release of the data.
Weather forecasters expect near-term heat in key energy markets followed by a period of moderation. “The latest forecast continues to track heat in two areas over the next week to 10 days in the West and East,” said Matt Rogers, president of Commodity Weather Group of Bethesda, MD. According to Rogers, “The models continue to offer robust hot weather opportunities for both sides of the continent over the next 10 days. For the Northwest, this should be the hottest weather of the season so far. For the East Coast, Midwest and interior Deep South, this should either match or exceed the hottest weather so far. We still see indications of a pullback in the heat by next weekend and feeding into the 11- to 15-day [forecast]. The warmest anomalies focus farther north into Canada. There is some concern that the West may be slower to cool down than our forecast.”
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