Unable to capitalize and build on Monday’s 78.5-cent jump in November natural gas futures, traders on Tuesday explored both higher and lower price levels before the contract returned to settle near unchanged. The prompt month settled less than a penny lower at $6.442.

“We rallied this morning in November natural gas and were up another 30 cents, but we were actually negative by a dime to 15 cents in the afternoon before settling near unchanged,” said a Washington, DC-based broker. “I think that basically says that while we ran out of momentum on the upside, we held the new gains as attempts at beating the price level back down failed. Yes you can say that the market sort of stalled out Tuesday, but I would still say that the bull mode is in control here.”

Winter futures were also of interest Tuesday. While November climbed almost 80 cents Monday, gains in the winter months on the day — while still significant — were much smaller. The trend was the opposite on Tuesday. While November settled less than a penny lower, December natural gas dropped by 13.7 cents to close at $7.702, and the January and February contracts closed lower by 14.2 cents and 14.7 cents, respectively, to finish at $8.252 and $8.297.

Looking at fundamentals, the broker noted that even though storage essentially is full, any perceived threat to supply adequacy in the form of weather could make the market jump higher. “We could be in the midst here of a $2 rally due to the belief that the cold weather is going to draw storage down a little bit,” he said. “Even though the amount of gas in storage is known, it becomes a question of how much weather gets here and how long it stays cold.

“In addition to this early chill, I also think the question of what kind of winter is it going to be is back on the table due to recent conflicting forecasts,” he added. “Some are now calling for it to be potentially colder than normal in the East, which is why I think there is still some strength in this bull move.”

The broker noted that AccuWeather meteorologist Joe Bastardi’s winter forecast preview was released Tuesday and calls for normal to below-normal temperatures in the Northeast, which runs against the recent forecasts from the National Oceanic and Atmospheric Administration and EarthSat Energy Weather. Both NOAA and EarthSat are predicting warmer than normal winters on the whole (see Daily GPI, Oct. 11; Oct. 17).

On the upside, the broker noted that there are two very notable gaps on the perpetual chart. One of them was when the contract rolled over Sept. 27-28 from October ($4.200) to November ($5.650). Further back on the charts there was a gap lower on Aug. 25 ($7.080) over the weekend to Aug. 28 ($6.770). “The second one was really a big break in the market because it looked like the market was moving back up, but it failed and gapped down, so that has actually been a very controlling feature technically-speaking for some time,” he said. “At some point Tuesday we got into that gap, so I think $7.080 is the next key number to see if we can penetrate. If we can close above that level convincingly, then the bulls have something to run with. As for the downside, the low from Friday of $5.580 is still important. Below there, support lies at $5.270.”

Jay Levine, a broker with enerjay LLC, also sees the bulls as still in control. “I’m not the boy who cried wolf, merely a realist who happens to think energy is still immersed in a long-term bull market, one way or another, and it’s more a matter of maintaining or advancing prices, high as they are, versus reverting back to the good old days of cheap energy, susceptible to further declines, (fundamentally, technically and psychologically) notwithstanding,” he said. “Taking out $6.25 [Monday] signaled the rally would continue but also that $6.25 would then become an initial support zone (and an area likely to be seen again). It may not hold, but it’s also a good place to start, even if it gets taken out today/tonight/tomorrow.”

Below $6.250, Levine sees support at $6.025, $5.850 $5.750 and $5.450. As for resistance, the broker likes $6.450, followed by $6.650, $7.250, $7.500 and then $8.250.

Some traders suggested that the significant advance Monday was due to holders of short positions simply covering positions as the market moved against them. “I would anticipate some follow-through buying Tuesday, but I don’t know how much higher it’s going. There are probably some shorts out there that are still in the market,” a New York floor trader said Tuesday morning.

Weather patterns are constructive, but not blatantly bullish. AccuWeather reports that a typical fall pattern is setting up across the country where cooler air to the north, competes with fading summer’s warmth to the south. “This will be the case toward the end of the week as cool air will anchor over the Ohio Valley and into the Southeast, while warmer air will be confined to the West,” said David Thomas, AccuWeather meteorologist. He added that in front of the leading edge of cool air rain is likely across the Southeast into Florida.

Data from the National Weather Service (NWS) confirms the seasonal nature of upcoming weather patterns. The NWS predicts that for the week ending Oct. 21 that the states of New York, New Jersey and Pennsylvania will see 78 heating degree days (HDD), or 18 fewer than normal. The Midwest states of Ohio, Indiana, Michigan, Illinois and Wisconsin are forecast to see 100 HDD, or one less than normal. For the season that began July 1, the Mid-Atlantic states above have posted 205 HDD, or 63 fewer than normal, but the Midwest states have tallied 339 HDD, or 36 more than normal.

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