After starting out just above the psychological $7 level, January natural gas futures stumbled lower throughout the day, thanks in part to sympathy with crude and heating oil, which made significant drops in Friday’s regular session.
The natural gas prompt month traded within a $6.76 to $7.03 range before settling down 4.3 cents at $6.843 on Friday. For the week, the contract settled 4.7 cents higher than the previous Friday’s $6.796 settle.
“I really thought the market would go a little bit higher Friday before it came down,” said Rafferty Technical Research’s Steve Blair. “Trade was pretty quiet with volumes being moderate at best. I think a lot of people are getting into holiday mode already.
“We have been trading back and forth between our resistance and support levels for the last week,” he added. “On Friday, I think the petroleum sector pulled natural gas down along with it. The overriding factor on the petroleum side Friday was OPEC’s curtailment announcement.”
In an effort to stop the declining world price for crude, OPEC agreed Friday to reduce output to target production levels early in 2005. Under the plan, OPEC would pump about 1 million b/d less than it is currently. As a result, the new daily quota would be approximately 27 million b/d. While some expected the OPEC announcement to send crude higher, the January contract actually did the opposite, closing $1.82 lower at $40.71/bbl. January heating oil also fell 7.44 cents to settle at $1.2257/gallon.
Blair said the announcement did not scare traders because no real action has been taken yet. “When was the last time that OPEC adhered to their quotas?” he asked. “It’s been awhile.”
Going forward, Blair said he sees natural gas support around the $6.60 level. “While we have our minor supports right around Friday’s low of $6.76, the major level is from $6.60 to $6.50. On the up side, we’ve got minor resistance just under $7, but our major resistance is not until $7.23.”
Commenting on Thursday’s 88 Bcf withdrawal report, Blair said he didn’t think many people were expecting such a big pull. “However, when compared to three weeks ago when the Energy Information Administration reported an erroneous 49 Bcf pull, this one wasn’t that far off target,” he said. “There’s still plenty of gas. The bottom line on this market is that there is still no reason from a storage and weather perspective for the natural gas futures prices to be up.
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