The slumping economy and healthy levels of natural gas in storage continued to put downward pressure on the commodity’s price on Thursday as the February contract put in a new low for the downtrend before closing out the regular session at $4.681, down 9.9 cents from Wednesday’s close.
The bearish momentum also received added fuel Monday as some weather forecasters said they are looking for a warm-up to arrive in the next week or so. February natural gas put in a new low for the move Thursday morning at $4.483 before rebounding for the remainder of the session. Of note is the fact that Thursday’s close was above the $4.600 price point, which has been highlighted as a crucial pivot-point for the market (see Daily GPI, Jan. 22).
Citi Futures Perspective analyst Tim Evans said the natural gas market was back under selling pressure Thursday as the latest weather reports show a warming trend arriving over the next two weeks, with above normal temperatures in the central portion of the nation in early February putting a damper on heating demand.
The Frontier Weather six- to 10-day forecast covering Jan. 27-31 calls for above normal temperatures from the central Rockies to Texas and the Southeast, while the 11- to 15-day outlook covering Feb. 1-5 sees temperatures averaging normal in the West, Gulf Coast and East, with above normal readings coming in from the central region of the country.
“We continue to see the natural gas market as undervalued, but recognize that the market currently lacks the kind of supportive fundamental trend that could help steer prices back to the upside,” Evans said. “Drilling activity is down and that should lead to reduced supply in the months ahead, but we don’t expect the market to fully believe in that without evidence in the storage data that the supply/demand balance in the market has tightened.”
The Energy Information Administration will release the storage-change number for the week ended Jan. 16 at 10:30 a.m. Friday, one day later than normal, due to the holiday Monday and the presidential inauguration Tuesday. Ahead of the report, it appears most industry estimates are centered around a withdrawal of 170 Bcf to 180 Bcf. A draw of that magnitude might decrease some of the bearish sentiment as only 128 Bcf was removed last year for the similar week and the five-year average draw for the week is 126 Bcf.
A Reuters survey of 23 industry players produced withdrawal estimates from 149 Bcf to 201 Bcf with an average pull estimate of 179 Bcf. Evans said he is expecting 175 Bcf to have been removed from underground stores. Ritterbusch and Associates is looking for a 182 Bcf pull.
Analysts see continued weakness in futures. “This is clearly a bear market now, and it will take something dramatic to turn prices around,” said Peter Beutel of Cameron Hanover, a Connecticut-based energy consulting firm. He noted that natural gas prices had already suffered from a deteriorating economy as industrial demand eroded, but now that the heart of winter is mostly over, or at least its coldest temperatures are, the bulls may be forced to fight on two fronts simultaneously. “The fact that many of this heating season’s underground storage reports have been disappointing only serves to make temperatures forecast all that much more important,” he said. According to Beutel, Friday’s inventory report is crucial. “If it comes in on the light side after last week’s readings [94 Bcf draw], any outlook for normal readings could be devastating.”
The Department of Commerce gave additional insight into the poor health of the economy with its Thursday morning release of data on housing starts. Investors were expecting December starts to come in at 610,000 units, off from November’s 625,000, but the actual figure came in at a dismal 550,000 units. Housing starts have been in a steady downtrend from early 2006 when housing activity was at a level of two million units annually. In pre-opening trading Thursday futures dropped 3 cents following the release of the data.
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