Following a week of strong gains, December natural gas futures underwent some consolidation on Friday, recording a low of $8.355 before closing out the week at $8.418, down 21.9 cents from Thursday but 61 cents higher than the previous Friday’s close. The November contract expired Monday at $7.269.

Commenting on the week’s net gain in gas futures, one broker said natural gas traders simply weren’t able to ignore skyrocketing crude futures prices anymore — physical relationship or not. December crude continued its recent trend Friday by putting in yet another record high settle, this time at $95.93/bbl, up $2.44 from Thursday.

“I think the natural gas market is truly starting to succumb to the recent activity in the crude complex,” said Steve Blair, a broker with Rafferty Technical Research in New York. “It is sad to see, but these higher natural gas futures prices in light of current fundamentals are hard to explain. We’ve had a $28 move in crude futures in a little more than two months, so things are out of control. We’ve got the geopolitical concerns with the Turks and Kurds, the Iranian nuclear situation and OPEC’s hard stance on no increased output emergency meetings. In addition; we have the continuous pounding on the value of the U.S. dollar and a petroleum inventory report last week that was the exact opposite of what the industry expected. We got some bullish numbers in the report, which sent prices even higher.”

Blair noted that natural gas is a whole different story. “For the second week in a row, we got a storage injection report that was bigger than expected. Storage levels are now above year-ago stocks and are at record levels, but the futures market does not care. We got a larger than expected injection Thursday for the week ended Oct. 26, but futures rallied off of it.

“The other strange thing is the complete disconnect in natural gas between the cash and futures market. The difference between Henry Hub next-day cash and futures was more than $1.70 on Friday morning. This is a total disconnect. From the people I have talked to, the gap between the two markets would normally be approximately 40 cents during this time of year. What is interesting is we are getting to a point where there is no room to store any more gas in storage, so once that gas is forced onto the market, that gap could get even bigger. Unless we get old man winter in here pretty quickly, we could see an even greater disconnect.”

Some traders are banking on a rapid drop in storage levels as winter kicks off. With a plump 3,509 Bcf in storage, future price direction should focus on weather and its impact on storage. Some traders are stretching to get a feel for what kind of winter may be in store, and the November-December period is particularly important for assessing the weather and storage dynamic.

In the short term, forecasts of colder temperatures through mid-November may put the bears on the ropes. “The bulk of this [last] week’s buying interest appears based on a shift in most weather forecasts that are generally favoring below-normal temperature patterns across the eastern half of the U.S. beginning early [this] week and extending toward mid-November,” said Jim Ritterbusch of Ritterbusch and Associates. He said if such a forecast materializes, it would indicate a “sizable significant storage withdrawal” in the Energy Information Administration reports to follow.

According to the National Oceanic and Atmospheric Administration in its latest six- to 10-day forecast covering Nov. 8-12, colder than normal conditions are expected east of a line running from central Louisiana to eastern Wisconsin, while areas west of a line from central Texas to central Minnesota are expected to record warmer-than-normal readings, with the small sliver in between seeing near-normal conditions.

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