Guided by financial and commodity market weakness and the lack of any supportive news, May natural gas futures on Tuesday dropped to a new low for the down move before closing out the regular session at $3.562, down 17 cents from Monday’s finish. The last time a front-month contract settled lower was more than six-and-a-half years ago on Sept. 25, 2002.
“The most interesting thing about Tuesday’s drop is that we made new lows and are trading at a price level not seen in a number of years, yet our phones weren’t ringing off the hook with buy orders,” said a Washington, DC-based broker. “I would have thought my buyers would have been coming out of the woodwork, but regrettably I think they already bought. I think a lot of our marketers already have stuff locked in for 2009 and 2010. I just did my first natural gas order from the buy side in a couple of hours.”
The broker said she thought Tuesday’s plummet in natural gas futures was “absolutely” in sympathy with the day’s Wall Street weakness and nearly $2 drop in front-month crude futures. The Dow Jones Industrial Average fell approximately 186 points to finish at 7,789. After briefly breaking below $50/bbl during the last few trading sessions, May crude finally made it stick on Tuesday with a settle of $49.15/bbl, down $1.90 from Monday’s finish.
“I think the markets are all connected and really do feed off each other,” she said. “We are also coming into 1Q2009 earnings. We’ve been hearing from a lot of customers who are hesitant to buy anything because they are concerned that earnings are going to show bad results again.”
Looking at the near-term path for natural gas futures, the broker said the market looks “awful, continually bearish and will apparently tell us when it is done. Using one of our Elliot Wave charts, you could make a case for prices to get down to $1.700/MMBtu. Now you have to remember that is a computer looking at the Fibonacci relationships and such, so it doesn’t care if we think $1.700 gas is outrageous or not. Weirder things have happened in this market.”
As substantive weather input diminishes a lot of traders’ search for clues to the natural gas price direction from other markets, some suggest that gas prices during the shoulder period will get most of their guidance from elsewhere. “Although we have suggested taking profits out of short May positions, a price rally to our preferred $4 area where we would like to reestablish shorts could prove to be a stretch unless the oil complex is able to spike up by some 5-10%,” said Jim Ritterbusch of Ritterbusch and Associates. He added that the natural gas market would “remain in the doldrums at this early stage of the shoulder period in which weather guidance will be replaced by a heavier focus on weekly storage figures and spillover from other financial and commodity markets.”
Other traders think gas futures have dug a hole so deep that it will take some doing to get out. “Natgas has fallen and so far, anyway, has been unable to get back up. Regarding the downside, we see room to the $2.500 area if the $3.520-3.210 zone fails to hold,” said Walter Zimmerman of United Energy. He noted that last week the market did show a “bullish bottoming pattern” on the candlestick charts but it “requires a decisive rally this week for confirmation. Bulls need a close above $4.250 to have any case.”
Buyers are ready, albeit at lower prices. “Buy May natural gas at $3.20 — stop $2.90,” said Phil Flynn of Alaron.
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