After keeping its head above key psychological $8 support for most of Friday’s regular trading session, the February natural gas futures contract stumbled within the last half hour of trade to record a low of $7.990 before settling at $7.993, down 8.8 cents on the day and 21.7 cents lower than the previous week’s close.
After etching its $8.210 high for the session in early trading, the prompt-month contract worked lower for the remainder of the session. Friday’s close marked the contract’s fourth consecutive lower finish, leading some to believe that the $8.480 high and $8.353 close on Jan. 14 might have been the climax of the move. That said, other market participants haven’t given up on the bull move just yet.
“While we settled below $8, our models are still long. The developments over the last couple of days have moderated our bullish stance a bit, but we will see what we get in the coming week,” said a Washington, DC-based broker. “With storage levels coming down at a pretty good clip, all of the bears on storage are having to moderate their stances. Three months ago we had so much gas and now we are under last year and well within the five-year average band.”
Noting that the market only has a little more winter left to navigate, the broker said the change in the storage dynamic from three months ago is definitely affecting summer prices. “The huge-overhang-in-storage argument has been reduced significantly, so the mass pessimism on the part of the natural gas bulls about where we stand with storage for summer might be gone now,” he said. “Some of the types of people I know who would be most worried about that would now be looking to sell…and have done so. I might look at them as contrary indicators because they finally got worried enough to dump their summer gas, so now is the time it rallies.”
Despite the price pullback of the last few trading sessions, the broker said he would need to see some pretty firm developments in order to change his bullish stance. He added that in a classic five-wave pattern using the Elliot Wave theory, the current natural gas futures market is in a fifth wave up. A typical Elliot five-wave pattern assumes three waves, one, three and five in the dominant direction — upwards in this case — punctuated by waves two and four in the opposite direction.
“Looking at Elliot Wave on the charts, we still have natural gas in a five-wave up, so we still believe this is the last part of the major up move that kicked off in late August,” he said. “Even though we are under $8 now, I won’t change my bullish view until we got down to $7.550-7.600. If we punch through that range, then I think we are done for and likely heading down to the $7 or $6.850 price level.”
Once again, the major bull/bear argument remains between the dueling weather forecasts of the coming week versus two weeks out. While the Martin Luther King Jr. week is expected to exhibit mostly colder-than-normal readings, the next week is expected to produce normal and above-normal temperatures. “While this frigid weather will certainly hike demand, these cold air expectations during the coming week are beginning to come into conflict with changing meteorological expectations beyond next week that could bring a return to normal patterns across much of the country,” said Jim Ritterbusch of Ritterbusch and Associates.
Meteorologists studying computer model runs that attempt to forecast the next 11- to 15-day period see a warming trend in eastern energy markets. “The East again trended warmer [Thursday] as [a] chill at the beginning of the period moves into the six- to 10-[day window],” said Matt Rogers, a meteorologist with MDA EarthSat. He added that the model consensus supports several days of warmer weather across the eastern two-thirds of the nation as above-normal temperatures periodically reach toward the Great Lakes and Northeast. Further out the models predict cooling. “On the flip side, the cooling seen building on days 14 and 15 in [Thursday]’s model runs has made progress moving forward in the forecast,” said Rogers in EarthSat’s Friday morning forecast.
Warming and cooling notwithstanding, Ritterbusch looks for a firm market with forays higher in the cards. “Notwithstanding [Thursday’s] support violation at the $8 level [February futures traded as low as $7.960], we still look for price action in the February futures to generally be contained to the $8-8.50 zone through at least [this coming] week. In other words, we feel that the market is currently trading toward the low side in what we view as an approximate 50-cent trading range,” he said in a note to clients.
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