After finally breaking through to settle above $5 earlier, November natural gas futures gave it all back late last week to close nearly unchanged from the previous week’s finish. The prompt-month contract on Friday closed at $4.787, down 16 cents from Thursday but six-tenths of a penny higher than the previous week’s finish.
“I think the funds are having their way with this market,” said Steve Blair, a broker with Rafferty Technical Research in New York. “The market has more gas than it knows what to do with, and it is not really cold anywhere at the moment. We got up over $5 during the week but ended up coming back down to earth. I believe there is some speculative activity going on here.”
The broker noted that the screen’s relationship with physical prices has him a little stumped. “What puzzles me to a certain extent is that instead of the futures market coming down to trade at where the cash market was, the cash market instead made the trip up over the last week or two. In fact, cash is now trading at a premium to futures.” The Henry Hub cash price averaged $4.88 Friday.
Blair noted that the front-month contract has traveled a pretty wide range over the last week or so. “We’ve nearly traveled a full $1 within the last couple of sessions here. We got down to test support at $4.380 and bounced rather nicely,” he told NGI. “Ended up breaking through $5 into the low $5.30s, so there has been some pretty good movement. I wouldn’t be too surprised if we tested some major support areas starting around $4.380 again. However, I would be surprised if we traveled much lower than that because winter is approaching. I think we’re likely limited here. There just is not a whole lot of downside potential due to the time of year. Sub-$4 is probably off-limits.”
Some analysts viewed Thursday’s decline of November futures below $5 as a tip-off of things to come but thought that any further price decline would likely be contained by support in the $4.50-4.60 area. In the near term, fundamental developments may have less impact.
“We continue to feel that daily price swings are more a function of hedge fund positioning rather than reaction to fundamental news items,” said Jim Ritterbusch of Ritterbusch and Associates. He added that temperatures are dropping, but “the market is still in the latter stage of the shoulder period in which below-normal temperature patterns will not likely translate to a major upswing in heating-related demand.”
Residents along the East Coast should not have to worry about much heating demand as weather forecasts call for a warm East Coast and frigid Rockies. MDA EarthSat in its six- to 10-day forecast calls for upper ridging along the East and southerly flow ahead of low pressure, which will provide widespread above-normal temperatures to the East until late in the period.
“A slow eastward progression of the pattern will occur late, warming the West while cooling the eastern U.S.,” it said. The forecaster said its models are in “good agreement” on an upper trough, which will combine with surface high pressure with connections to the upper latitudes to produce strong below-normal readings through the Rockies and Plains through at least the first half of the period.
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