Fittingly enough, traders of February natural gas futures stuck with their trend of the week Friday by continuing to side with the faltering economy over chilly temperatures. The prompt-month contract ended up dropping 4.2 cents Friday to close at $4.801, which was 71.5 cents, or 13% lower than the previous week’s finish.
Despite the overwhelmingly bearish trend for the week, some market experts believe the end of the six-month long down move from a July 2008 high of $13.694 is right around the bend and will be followed by a significant up leg.
“This market is still in the bear mode, but I do have to mention that a lot of our end-users were buying a lot of locked-in deals for 2009, 2010 and beyond,” said a Washington, DC-based broker. “I don’t know whether our guys are the smartest to buy now, but the rest of the market is not on board yet. The large industrials who are shutting facilities are not doing it because of high input costs. They are doing it because they don’t have anyone to sell their product to. Some people are saying if DuPont closed and Alcoa is shutting down some lines, then we’re not going to see a rally that really means anything. That said, we are still saying that this is the end of the down move and that after this will be a rally that you’ll want to be long through; we just are not there yet.”
The broker said it is very clear that the bearish economy continues to trump bullish temperatures. “It’s not helping any that even with the cold temperatures we are not drawing storage down,” he said. “The last three storage reports have revealed smaller-than-expected withdrawals. Either the remaining rigs that are still running are especially productive, or it just hasn’t been as cold as it feels. One guy I was speaking to Friday said a 200 Bcf withdrawal would likely snap us out of this funk, but I don’t even know if that would do it. It will be interesting to see if the excitement surrounding Obama’s inauguration can turn things around for the economy, or at least the perception of the economy.”
Looking at price targets to the downside, the broker said, “Our next set of objectives come in around between $4.600 and $4.150. I realize that is a wide area, but the zone should slow things down a bit if we get down there.” As for the probability this market could see a three at the front of the price, he said he did not expect to see $3 gas, but you “can never rule anything out” in the natural gas futures market.
Weather bulls may still be holding out hope for higher prices. In its Friday morning six- to 10-day forecast MDA EarthSat predicted colder- to much-colder-than-normal temperatures east of a line from North Dakota to Alabama. “There has been a trend [in the computer models] toward a faster and stronger push of cold into the eastern half of the U.S.,” said Matt Rogers, director. He forecast that the next round of arctic chill would “push southeast at about day seven, before rushing to the East Coast by day eight and for the second half of the period. The warming preceding this next push of cold was also reduced across the Midwest and East.”
Traders looking for support from the petroleum complex in the coming week might be disappointed. According to a Bloomberg poll, 49% of respondents said futures would fall through Jan. 23 and 34% forecast that oil prices would increase. Last week 41% of analysts expected a gain in prices. From Jan. 9 to Jan. 16, prices fell $4.32/bbl.
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