After enduring a fast and furious first three days of trading for the week that resulted in a $1.432 drop, traders appeared to seize the opportunity on Thursday and Friday to expand one of the last weekends of the summer. Following a slow Thursday, the activity Friday once again was lethargic as the September natural gas futures contract closed at $5.523, down 9.9 cents on the day, and $1.487 lower than the previous Friday’s close.
“The market really did not do very much Friday. It kind of played around back and forth in a very small range,” said Steve Blair, a broker with Rafferty Technical Research in New York. “The only spark came about a half an hour before the close when we had a little bit of a rally up into the $5.60s, but we came off and made some new lows at the very end of the day. I think the little rally was nothing more than a little bit of short-covering ahead of the weekend, but make no mistake, I was not surprised that we then fell off and made new lows at the end. The market is weak. We have a lot of gas; a fairly sizable injection is expected in the report this week, and there is not a whole lot going on storm-wise in the tropics. I really think storm fears are the only thing that can drive this market convincingly to the upside.”
Looking at support lines, Blair said the first level sits at $5.460, followed by $5.390. “There is a lot of talk out there that before the October contract goes off the board at the end of September, this thing is going to get pounded lower, unless we have some storm in the Gulf of Mexico,” he said. “We could see futures prices with a four in front of them, just like we saw last year.” During late September, front-month natural gas futures hit a regular session low of $4.070 after the well-hyped 2006 Atlantic hurricane season proved to be all bark and no bite.
“The weather picture really is not helping the bulls either,” Blair added. “After a few weeks of above-normal temperatures, it looks like we are going to be cooling off. A couple of forecasts are saying Labor Day and the surrounding period is likely to be pretty cool in the Northeast. The only thing that can do is continue the injections. When all is said and done, by the time September ends we could be sitting comfortably with 3.2 Bcf to 3.3 Bcf in storage.”
On Thursday, the Energy Information Administration (EIA) reported an injection of just 23 Bcf, short of industry expectations closer to 30 Bcf, but the response from the bullish camp was hardly deafening, likely because analysts consider the absolute level of supply to be more important than incremental injections.
“A record level of storage per date is tending to restrict short-covering on the part of the speculators while, at the same time, curtailing long hedge protection by the commercials that have been maintaining a sizable net long position throughout the summer,” contended Jim Ritterbusch of Ritterbusch and Associates. He added that the oversupplied nature of the market “was underscored again [Thursday] with the inability of the market to respond favorably to a smaller than expected storage injection. The 23 Bcf injection was 5 Bcf lower than we had expected and narrowed the supply surplus against the averages by another 38 Bcf.”
The hefty surplus raises the possibility of a test of the low $4 level. Ritterbusch contends that “a repeat of last year’s weak pricing scenario that carried prices to sub-$5 levels by mid-September cannot be ruled out.”
Others aren’t quite so sure. “Some of my clients want to play the short side, but they are worried about more hurricanes,” said a California risk manager. “I like the chart points at around $5.400, but below that the market is getting oversold. Crude oil is still at $70, let’s not forget that,” he said. Sub-$5 natural gas may require some help from the petroleum complex. When spot natural gas futures traded at its lows in late September 2006, spot crude oil futures were trading just under $63/bbl. On Friday, October crude finished the day at $71.09/bbl, up $1.26 from Thursday’s close.
©Copyright 2007Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |