With sellers content with last week’s 50-cent price erosion, and bulls desperately clinging to the last vestiges of support, natural gas futures marked time Friday, with prices moving quietly sideways on mostly unchanged fundamental and technical factors.
Modest short covering was the only discernible feature in the trading session, enabling the December contract to notch a scant 1.6-cent rise and $4.634 settle. At 74,160, estimated volume was average for a Friday in the gas pit.
Heading into Friday’s session, several traders thought it possible the market would experience a decent-sized rally in a delayed reaction to the bullish storage news released by the government Thursday. According to the Energy Information Administration, 32 Bcf was pulled from underground storage facilities during the week ending Nov. 14. In addition to exceeding consensus estimates in the 10-27 Bcf range, the withdrawal surpassed the year-ago and five-year withdrawals of 1 and 18 Bcf respectively.
However, natural gas futures traders are always looking ahead and that was evident Thursday when they chose to ignore the bullish news to focus on the potential for bearish data this week. The EIA said it intends to release its next weekly storage survey on Wednesday between noon and 12:10 p.m. EST because of the Thanksgiving holiday. Early expectations are centered on anything from a single-digit withdrawal up to as much as a 30 Bcf net build. Last year at this time the market experienced a 49 Bcf withdrawal and the five-year average is a 40 Bcf takeaway.
Weather also remains solidly in bears’ favor in both the short and long runs. While western states will cool down slightly this week, the East will continue to see above-normal temperatures, the National Weather Service said. Further out on the horizon, the NWS sees above normal temperatures across roughly two-thirds of the nation extending from the Southeast clear across south central portions of the country to the Southwest. Mild temperatures also are expected to extend up the West Coast to include the Pacific Northwest.
And while the weather and storage outlooks may seem like an unavoidable indictment for lower prices, the bulls are steadfast and are hanging their hats on key levels of support that have yet to be broached. “As long as [January] gas remains above [Gann support at $4.85], the longer-term outlook is for gas to move erratically higher,” wrote Craig Coberly of GSC Energy in Atlanta in a note to customers Friday.
Because he feels the market has a nearly equal chance of going up or down from current levels, Ed Kennedy of Commercial Brokerage Corp. favors the use of options for both producers and end-users. “Why would you lock yourself into a price here? Low implied volatility makes options relatively cheap. Producers should buy puts below the market and end-users should buy calls above the market.”
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