Harnessing momentum from Thursday’s lackluster 111 Bcf storage draw report, natural gas futures traders on Friday continued to put pressure on the downside of the market, resulting in the April contract closing at $4.400, down 4 cents from Thursday’s regular session finish and 19.3 cents lower than the previous week’s close.
The bearish momentum in the market is pervasive. Four out of the five days last week a new low was made for the larger down move, ending with Friday’s $4.377 low. The last time front-month natural gas futures traded lower was on Nov. 24, 2009, when the expiring December 2009 futures contract reached $4.361.
Front-month natural gas futures have dropped by more than $1.70 since early January, but a number of market watchers see even lower values ahead thanks to a still weak economy, comfortable storage levels and the arrivals of increased shale gas production and liquefied natural gas cargoes (see Daily GPI, March 12).
“It looks like the natural gas futures market still has some more room to the downside as evidenced by the last few weeks of grinding lower,” said a New York broker. “We’ve just completed our ninth week of this move, which started back on Jan. 7 after the front-month contract reached a high of $6.108. I’m not sure we’ll see September’s low of $2.409, but I don’t think breaking below $4 is out of the question.”
Heading into Friday’s regular session traders anticipated continued market weakness, yet factored in some supportive economic data. Bullish traders were pleased with the 8:30 a.m. EST release of February retail sales figures by the Commerce Department. January sales increased (month to month) at a 0.5% rate, and expectations for February were for a change of minus 0.2%, due mainly to reduced auto sales. The actual figure came in at 0.3%. On a year-to-year basis retail sales stand 4.4% higher. Nearly 75% of the time changes in monthly retail sales range between an increase of 1% and a decrease of 1%, and when figures fall outside that range it is usually due to exceptional increases or decreases in spending on motor vehicles.
Short-term traders see prices working still lower. “We’ve got pretty mild weather and the market looks like it wants to test $4.25,” said a New York floor trader.
He added that he expected the market to “flush out a little bit down to $4.30, and we will settle out between $4.20 and $4.30 in the next couple of days. No one is talking a $3 handle just yet, but you never know. We could be there before you know it.”
Thursday’s reported 111 Bcf storage withdrawal for the week ending March 5 may be the last triple-digit pull of the season. Forecast heating requirements suggest far less use of natural gas for residential and commercial purposes. The National Weather Service predicts a sharp decline in the number of heating degree days (HDD) for the week ending March 13. New England is expected to see 136 HDD, or 84 fewer than normal, and New York, New Jersey and Pennsylvania are anticipated to see 148 HDD, or 53 fewer than normal. The Midwest from Ohio to Wisconsin is expected to experience just 137 HDD, or 74 fewer than normal.
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