Giving back all of Monday’s gains and then some, December natural gas futures on Tuesday made a second unsuccessful run at breaking through and staying below the psychological $7.00 mark. After reaching a low of $7.05 on the day, the prompt month settled at $7.124, down 31.2 cents.
The debate on when lasting winter temperatures will impact the country continues as weather forecasts remain uncertain. The fact that the natural gas storage situation is currently more than healthy as the U.S. enters the winter heating season is also doing nothing to keep prices up.
“The fact that Monday’s rally was as strong as it was and closed near its highs was impressive and all, but it failed to break the downtrend line,” a Washington, DC-based broker said. “It really would have needed to rally back above $7.75 to $7.80 to break that line.
“We’ve seen Tuesday that the little rally wasn’t really holding, so I think the market wants to get back down to probe that $6.95 to $7.00 support band. Once it does, we will see if it holds up again,” he said. On Monday, the prompt month was able to penetrate below $7.00 to notch a trade at $6.98 before rebounding higher shortly thereafter (see Daily GPI, Nov. 16 ).
The broker pointed out that if there are two or three touches on a significant support level, then the market could be dealing with a bottom. “One touch on the support mark does not resolve the issue on whether it will hold or not,” he said.
The broker said he expected a test of the $6.95 to $7.00 area again on Wednesday, but he noted that the petroleum inventory reports could change that. “While market analysts are calling for a build in heating oil, a draw could boost heating oil prices and give a ‘sympathetic lift’ to natural gas prices,” he said.
Looking to the Energy Information Administration’s natural gas storage report for the week ended Nov. 12, the broker said that while most people are calling for a small withdrawal, the report doesn’t have to be too far off for a small injection to take place. “There is no hard and fast rule that there must be a withdrawal [last] week, it is just more likely than not,” he said. “However, I don’t think industry players would be surprised to see one more injection.”
IFR Energy Services’ Tim Evans said he doesn’t expect a big number when the report is released Thursday morning. “Thursday’s DOE report is likely to show storage as of last Friday roughly unchanged, a bearish outcome relative to the 15 Bcf five-year average withdrawal for the period and one that would be all the more keenly felt since temperatures had been on the cool side,” he said.
Citigroup’s Kyle Cooper said he is looking for a draw between 21 and 11 Bcf, but “there is a great deal of uncertainty in our estimation.”
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