The natural gas futures roller-coaster ride, complete with ups and downs, continued into a new week as the October contract — fresh off of a 32-cent jump Friday — dropped 20.2 cents Monday to close at $3.576.
The prompt-month contract put in a high of $3.759 just before 1 p.m. EDT before slinking lower to close. Some market watchers believe that futures have set up a temporary trading range with no real impetus to break out in either direction.
“I am not surprised by the back-and-forth action that we’ve been seeing here,” said Steve Blair, a broker with Rafferty Technical Research in New York. “There is resistance at $3.900 and some support around $3.500. We really are just going back and forth like a ping-pong ball. It looks like we’ve found ourselves a little range here.”
Blair added that the low notched earlier this month is likely safe. “The $2.409 low from Sept. 4 is basically in stone. The bottom to this market is in.”
Looking at what’s next for the market, the broker said the normal guidance that comes into play at this time of year is likely moot this time around. “Under normal circumstances, I would say the market would take its next cue from the storage situation, but it really isn’t a question this year,” he said. “By the end of September some estimates count on another 200 Bcf to be added to inventories…and we still have another month left in the traditional injection season. We’re probably looking at 3.8 to 3.9 Tcf in the ground by the time this is over with. There are not that many hurdles to this occurring because as we enter fall it becomes less likely that a storm will get into the Gulf of Mexico. It could happen, but it is not that likely.”
With storage levels a foregone conclusion, Blair said the economic recovery and winter heating season are the next events for the market. “Hopefully a turn in the economy will pull the industrial gas demand up and maybe we’ll get a cold winter. With as much gas as we have now, the winter is not going to be that big of a concern unless we get a long, early stretch of real cold.”
Traders and analysts are mulling bearish technical arguments against what some perceive as a new bullish environment. Analysts saw a different type of market strength in Friday’s hefty advance. “Natural gas prices rallied by 32 cents on Friday, completely negating Thursday’s decline. This is the second time in recent weeks that a steep decline in natural gas prices has been followed immediately by a sharp advance that erased the previous day’s losses,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm.
He added that it “is an extremely bullish sign that informs us that this recent advance is completely different than previous attempts to find a bottom.” Beutel conceded that the rally would have a stronger foundation if it were not due in large part to commercial short-covering, but “large speculators still hold three shorts for every long, which tells us that they are short natural gas against something else,” he said.
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