The natural gas futures market backed off of its Friday bullishness on Monday as some private weather forecasts for the near term began to look warmer than first expected. The February contract dropped 9.7 cents to $5.722.
Monday’s decline in values stood in stark contrast to Friday’s 20.4-cent addition, leading some market watchers to label the “back-and-forth” as a product of the February contract’s expiration Wednesday. “I believe a lot of traders are getting their books right on the February contract and moving on to March,” said a New York broker. “A little bit of squirreliness can normally be expected in the week leading up to a contract’s termination. Of course, a fluctuating weather picture doesn’t hurt either.” The March contract shaved 8.7 cents Monday to close the regular session at $5.663.
The fact that crude futures were scouting higher prices on Monday came as no surprise to at least Citi Futures Perspective analyst Tim Evans. March crude finished the day’s regular session 72 cents higher at $75.26/bbl.
“The natural gas market is maintaining its contrary relationship to the petroleum markets, seeming to zig whenever crude oil zags,” Evans said. “In this case, natural gas is seeing some light volume selling after updated weather forecasts showed somewhat less heating demand than the ones from Friday, with some warmer-than-normal readings in the central Plains and parts of the Midwest in the 11- to 15-day outlook against a backdrop of normal temperatures across the rest of the map. As these temperature forecasts continue to waver, and without variances greater than the three- to eight-degree levels either side of normal indicated for the next two weeks, we think prices might continue to chop within their recent range.”
Evans noted that a fairly steady weather picture should give market watchers a clearer understanding of where the market might go. “The good news, at least for market analysts, is that near-normal temperatures will help us to gauge the background supply/demand balance here with greater confidence,” he said. “Normal temperatures may not be dynamic in their impact on storage or in the driving price movement, but they can be useful nonetheless.”
Matt Rogers of Commodity Weather Group in Bethesda, MD, expects colder weather to return in the six- to 10-day period, but he predicted “mixed conditions in the 11-15 day [forecast] with the Midwest warmer. The big picture still favors a cold-prevailing February pattern.”
February futures rose 12.8 cents for the week ended Jan. 22, but top traders see no reason to change their strategies. Mike DeVooght of DEVO Capital, a Colorado-based trading and risk management firm, suggests that trading accounts and end-users stand aside and producers should continue to hold on to a $5-8 collar initiated in August at a cost of 35 cents. He also continues to hold a 12-month strip consisting of a $5.50 put option along with a $7.50 call that was begun in December.
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