After quickly recording a low at $5.621 just minutes into Friday’s regular session, February natural gas futures climbed the rest of the day to close at $5.749, still down 5.7 cents from Thursday’s close but 17.7 cents higher than the previous week’s finish. News of a potential warm-up during the Jan. 11-15 week could have had something to do with the weakness Thursday and Friday.
“The natural gas futures market has had a pretty interesting week or so,” said Tom Saal, a broker with Hencorp Futures in Miami. “We’ve had some terrific winter weather with some forecasters comparing the season to those in the late ’70s in terms of severity, intensity and longevity. Gas futures really don’t have anything to compare this winter with.
“What you would normally expect to see is backwardization where the cash price trades at a premium and absorbs all of the near-term demand. Futures then trades at a discount out through the first several sequential months. That is exactly what we are seeing here.”
Despite the 35.9-cent drop from Thursday’s early morning high for the move of $6.108 to Friday’s regular session close, some market veterans aren’t quite ready to say goodbye to the upside. Commenting on the difficulty of getting through $6, Saal said traders may not be done with that price level quite yet.
“If we had gotten to $6 and failed dramatically below where we are now, then I would say it is a true failure. In reality we haven’t seen much of a drop,” he said. “In my experience, we have never had a winter like this where it gets very cold and is projected to stay cold. In years past we’ve had a chance to warm up here and there. What we’re going through is a new experience. This is why I’m not so sure we’ve had our last tangle with $6.
“If the weather stays cold, we’re not going to weaken. However, if the weather backs off and the market gets a chance to take a breather, it might actually represent a buying opportunity. We’re working off the storage surplus pretty swiftly. If January stays cold and it warms up in February and March, we will have already put a large dent in storage gas, so traders might start focusing on the question of whether we’ll be able to replenish it ahead of the 2010-2011 winter.”
Others see the cold taking a short break as some warming is forecast for the week. Instead of the bone-chilling cold that was gripping the Midwest and East late last week, a large portion of the country is forecast to enjoy normal to even above-normal temperatures. In is six- to 10-day forecast covering Jan. 14-18, the National Weather Service predicted normal temperatures for areas north of a line running from North Texas to mid-Georgia. The Northeast is expected to experience normal temperatures for the time of year while the Midwest and West Coast are expected to see some above-normal conditions.
Analysts suggest that the coming week could see weather-driven price declines. “Given the fact that weekends can often bring a significant alteration in the weather outlooks, we feel that next week’s anticipated warming trend may well be sustained toward the latter part of January,” said Jim Ritterbusch of Ritterbusch and Associates.
Traders were not pleased by the 8:30 a.m. EST Friday release of December employment figures from the Labor Department. Expectations were that non-farm payrolls would show a decline of 35,000, not as favorable as November’s gain of 4,000. The actual figure came in at a disappointing loss of 85,000 jobs, and the unemployment rate held steady at 10%, slightly better than the 10.1% the market anticipated. March Standard and Poor’s stock index futures dropped 4.4 points and February natural gas shed 10 cents immediately after the data was released.
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