After testing the low side of a well defined trading range on Tuesday and again on Wednesday morning, November natural gas futures pushed higher during Wednesday’s regular session. The prompt-month contract reached a high of $7.030 before settling the day at $6.972, up 21.1 cents from Tuesday’s close.
Traders said it is clear that gas futures remain stuck in the recent trading range that spans from $6.750 to $7.500. Over the last few weeks, the market would push lower, allowing the bears to test support for a number of days, then shoot higher as the bulls got their shot at cracking resistance. With no groundbreaking news funneling through the market, neither camp has enough momentum to break futures out.
“It’s scary how well defined this trading range is,” said Tom Saal of Commercial Brokerage Corp. in Miami. “Usually it doesn’t stay rangebound for very long, but it is what it is. There is not a whole lot of new news. We had some winter forecasts come out and while they look to be a little bit on the bullish side, they are long-range forecasts that are subject to change. The near-term forecasts are calling for pretty smooth sailing, so there is nothing really market-moving there.”
As for in which direction futures break the range, Saal said he thinks things will head higher. “These forecasts for five-month spans really cover a long time. All it takes is one cold 30-day period to shake this market up,” he said. “If that cold were to come early, it might change some opinions. I think we will definitely test the higher parameter one more time here very soon, but I don’t know if we will get out of the range.
“If I push all these Market Profiles together, it looks like right around $7 ought to be where things are priced,” he said. “We keep testing the upside and the downside of that number. The thing you have to remember is this market is actually acting more orderly right now than people give it credit for. Especially when you compare this market to oil futures where prices keep blowing and going.”
Some market technicians are mulling whether the decline in November futures is about to end. “It looks like a completed five-wave decline from the $7.616 high to Tuesday’s $6.640 low,” said Walter Zimmerman of United Energy. He suggested that “it is a bit early for the completed correction of the entire $5.192 (late August) to $7.616 advance.”
Prior to Wednesday’s trade, Zimmerman said that if natural gas did rally on Wednesday, “we suspect that it will only be a short-lived bear market correction of the losses so far from the $7.616 high.” Zimmerman pegs near-term support in the November contract at $6.620 and $6.425.
In its Wednesday six- to 10-day forecast MDA EarthSat predicts that the East Coast will cool to normal as a result of new output from both the American and European models. The model forecasts have “trended to the cool side of normal, and previous runs of both models were not as cold, arguing for caution with the expansion of below-normal temperatures in the East,” said MDA EarthSat meteorologist Matt Rogers.
Looking at the Energy Information Administration’s (EIA) natural gas storage report Thursday morning for the week ended Oct. 19, most industry expectations are looking for an injection in the 50-65 Bcf range, which would be bearish when compared to last year’s 24 Bcf injection and the five-year average injection of 49 Bcf.
A Reuters survey of 20 industry players produced a range of injection expectations from 35 to 65 Bcf. The average expectation of the survey was for a 54 Bcf build.
Golden, CO-based Bentek Energy’s flow model indicates an injection of 63 Bcf, bringing stocks 0.6% below the five-year high (last year) and 7% above the five-year average. The analysis firm is looking for a 36 Bcf injection in the East region, a 21 Bcf injection in the Producing region and a 6 Bcf addition in the West region.
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