October natural gas futures values plummeted on Monday after the three hurricanes on the radar Friday all chose a more northerly path over the weekend, sparing the Gulf Coast and U.S. energy interests yet again. Another theory is that the back and forth trading of the last week reflects the normal ebb and flow of a range-bound market. The prompt-month contract Monday reached a low of $3.806 before closing out the regular session at $3.822, down 20.2 cents from Friday’s finish.
Trading in natural gas futures over the last few weeks has been “both weird and interesting all at the same time,” said Steve Blair, a broker with Rafferty Technical Research in New York. “I see Monday’s pullback as futures values returning to the scene of the crime. We got back down into the $3.80s again, which is where we started last week.”
He told NGI his first major support number is $3.800, followed by $3.700 and $3.600. “We came down to our first support number, but I personally don’t think we’re going to get too much lower. Now if we continue to see storage injections of more than 100 Bcf, then anything is possible.”
As for the hurricane scare last week, Blair said he didn’t see too much to be concerned about. “I think people were pretty confident that both Igor and Julia weren’t going anywhere near the Gulf. The only real concern was Karl, because people did not know what it was going to do after it crossed the Yucatan Peninsula. I really think the run-up last week was a round of short-covering and possibly some attempts at putting some length on.”
Commenting on the front-month low for the move of $3.610 recorded on Aug. 27, Blair said he was not ready to say whether the seasonal low was in the books yet. “I think it really depends on what kind of storage injections we get over the next few weeks. If we get a couple more 100-plus Bcf builds, then that $3.610 mark might not stand. We’ll have to wait and see how it plays out.”
With Igor, Julia and Karl out of the picture, some analysts see a focus on supply and demand forces that in the short run could favor the bears. “The market is off to a weak start given lack of supportive storm updates during the past weekend,” said Jim Ritterbusch of Ritterbusch and Associates. He added that with the market entering the shoulder season and a diminished tropical weather picture, “any price rallies will be heavily reliant upon issues other than the weather factor. Clearing out the weather variable forces a concentration on supply side forces that still remain skewed toward the bearish side.”
While the current tropical threat situation diminished greatly over the weekend, some forecasters are still expressing concern for what could lie ahead. AccuWeather.com meteorologist Alex Sosnowski said it appears that a hurricane will likely originate from the Caribbean late in September, but noted that where it goes from there “remains a question.” As more and more models are coming on board with the idea, they “spray the track of such a tropical cyclone from the southern Atlantic Seaboard to the southwestern Gulf of Mexico,” he said.
AccuWeather.com Hurricane Expert Joe Bastardi maintains his prediction of 18-21 named tropical systems in the 2010 Atlantic season, adding that he expects a marked increase in the number of systems to form in or enter the Caribbean and the Gulf of Mexico region during the last part of the season, due in part to a raging La Nina. Bastardi said he remains concerned that one or more of these systems will have direct impact or landfall in the U.S. before the season ends.
For the five trading days ended Sept.14 September futures rose 11.4 cents to $3.966, but directional traders — those concerned only with price direction and not attempting to offset the risk of a physical market position — favored increasing short natural gas positions and reducing length. At IntercontinentalExchange long futures and options (2,500 MMBtu per contract) held by managed money rose by 10,710 contracts to 314,559 and shorts also increased 9,544 to 185,796. At the New York Mercantile Exchange managed money decreased long futures and options (10,000 MMBtu per contract) by 4,948 to 144,850 and shorts rose by 2,140 to 220,541. After adjusting for contract size, long holdings at both exchanges fell by 2,271 contracts and shorts rose by 4,526.
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