After pausing Friday to regroup, the natural gas futures bulls once again were in control on Monday as the February contract reached a high of $8.480 before coming to a close at $8.353, up 14.3 cents from last week’s close.
After gaining a net total of 36.9 cents last week, energy traders and analysts were eager to see whether the recent bull move to higher prices had any gas left in the tank. Monday’s $8.480 top marked a new high for the move, which could be seen as supportive to further gains. However, for that to happen, traders would have to overcome some bearish indicators and some uncertainties currently in the market.
“I think we saw an initial burst of additional short-covering Monday morning as the weather forecasts continued to change,” said Tom Saal of Commercial Brokerage Corp. in Miami. “It now looks like we are going to see some pretty cold weather in the near term in major gas-demand regions. However, as prices were pushed higher Monday, the bulls ran into a little problem. There is still plenty of gas in inventory and no one knows how long the cold weather will stick around. There is still a little bit of trepidation out there that is stopping the bulls from taking this thing a lot higher.”
Saal said support now sits at $8, while psychological resistance resides at $8.500 and technical resistance comes in around $8.720.
Weather bears look for a slight advantage in this week’s trading. The National Weather Service (NWS) forecasts below-normal accumulations of heating degree days (HDD) in major energy markets for the week ending Jan. 19. NWS expects New England to receive 259 HDD, or 24 fewer than normal, and New York, New Jersey and Pennsylvania to experience 245 HDD, or 19 fewer than normal. The industrialized Midwest states of Ohio, Indiana, Illinois, Wisconsin and Michigan are forecast to shiver under 289 HDD, or eight fewer than normal.
Market technicians, however, see the bearish case struggling. Taking into account last week’s 36.9-cent gain to settle at $8.210, some analysts say this week needs to see a significantly lower close to revive any hopes of lower prices.
“Last week’s trend was peaking with $8.310 key closing basis resistance as the 0.7862 retracement of the entire $8.712 to $6.838 decline,” reported Walter Zimmerman of United Energy. Zimmerman did acknowledge that the $8.210 close was below his firm’s key resistance of $8.310 and the candlestick pattern for the week was an ominous dark cloud, but “the first requirement for the bears is a decisive close below $7.955 as 50% of the $7.500 to $8.410 rally. Without a close below $7.955 the bears have no case,” he said in a note to clients.
Other traders are ready to go short. Phil Flynn of Alaron reports that his long February natural gas position from about $7.290 was stopped out at about $8.090 for an approximate 80-cent gain, and he now suggests selling February natural gas at $8.550 with a stop loss order at $8.650.
The New York Mercantile Exchange (Nymex) confirmed Monday that it will expand the listing of contract months for its natural gas, natural gas swap and natural gas penultimate swap futures contracts up to 12 years, beginning on Feb. 17 for trade date Feb. 19. The contracts on the Nymex trading floor and Nymex ClearPort — which are currently listed for the current contract year plus five additional years — will now be listed for the current year plus the next 12 years through December 2020. Contracts listed on the CME Globex electronic trading platform will expand to the current year plus the next eight years, for a listing through December 2016. This expansion will also apply to natural gas calendar spreads and strips listed on CME Globex. The extension of contracts was first announced by Nymex back in mid-December (see Daily GPI, Dec. 14, 2007).
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