February natural gas reacted to a weakening weather outlook and retreated under $3 again Tuesday. There remains little indication that the storage surplus will stop widening anytime soon, and traders look for continuing weakness. At the close February had fallen 7.0 cents to $2.941 and March had given up 8.0 cents to $2.970. February crude oil rose 93 cents to $102.24/bbl.
“Natural gas prices just can’t get back up right now. I think it will stay down for a little bit and there is no reason for it to rally now,” said a New York floor trader. “If we finally get a winter, maybe we’ll get a rally, but a day here and a day there won’t get prices back up. It’s almost 50 degrees here in New York.
“Everyone here is holding their breath that the weather will stay like this, but I guess the ski areas are having a little difficulty. Prices went down [Tuesday] because of a lack of bids and the market just doesn’t have any reason to hold itself up. There is no motivation to rally.”
As far as where the market may find some support, the trader offered. “I like it in the $2.87 to 2.89 area, right underneath Tuesday’s lows. I don’t think it will hold and will be tested again Wednesday and probably taken out. Even if you do get a rally and it can’t get through the mid-teens, I think the market will fail again and take out Tuesday’s lows in the near future.”
Market observers are looking for any late-season cold to have minimal impact. “The natural gas market has fallen back below the $3.00 mark as updated temperature forecasts have subtracted a bit of heating demand from the 6-10 and 11-15 day forecast periods,” said Tim Evans, analyst at Citi Futures Perspective in New York. “We also note that the calendar is beginning to work against the bulls as any cold that does arrive in February or March tends to have only a limited impact on either storage levels or market sentiment. Early season cold is bullish with more of the heating season to follow. Late season cold can even result in an inventory liquidation sale, as local distribution companies see a last chance to make room for the injection season to follow.”
Analysts had suggested that the market had found a respite from the pervasive downtrend…for the moment. “Downside price momentum in this market appears to have stalled for the time being with February futures settling in at around the $3 mark,” said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients.
“Although the temperature views are offering little solace to a bullish view, we continue to feel that a lack of cold Arctic air through the balance of this month has been largely priced in and that the large speculators are currently more interested in accepting profits out of short positions rather than adding to a sizable bearish holding. But this won’t necessarily preclude another price downdraft into fresh low territory by the end of this week. Assuming no major alterations to the weather views, we feel that the $2.93 mark is vulnerable following this Thursday’s release of the EIA [Energy Information Administration] storage number.”
Monday’s 5.1-cent decline by February futures was a disappointment to the bullish cause, but February settled at $3.011 and managed to hang on to $3 technical support. Nonetheless, analysts contend that for the market to show further declines are not in the cards, a lot of work is needed. “To even suggest a bottom is being carved out, the A=C objectives from the $2.936 low must first be exceeded,” said Brian LaRose, analyst with United ICAP. “A=C cuts at $3.134; 1.618 of A=C cuts at $3.250. Until this can be accomplished, we cannot seriously entertain the case for bottoming action. That said, caution is warranted as the bullish consensus is near the 2009 lows and the seasonal cycle turns up into the end of January.”
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