November natural gas futures on Wednesday posted gains for a second straight day on what could be a round of technical buying, despite the arrival of natural gas storage injection data Thursday morning that is expected to be larger than both year-ago and five-year average comparisons for yet another week.
Trading between $3.633 and $3.777, the November contract went on to close at $3.696, up 6.7 cents from Tuesday’s finish. The gain brings the prompt-month contract’s two-day run higher to 9.5 cents.
Citi Futures Perspective analyst Tim Evans said he would be much more comfortable with the technical move higher if it had some fundamental backing. “The natural gas market is drawing some buying interest of a technical variety, with traders apparently impressed that the market found support in Tuesday’s trade at the level it did,” he said. “We don’t have any supportive fundamental shift to go along with that, however, as the temperature outlook still seems benign and Hurricane Paula is still pointed toward the Bahamas.”
In analyzing the last two days of trading, Evans said it is quite possible for a sell-off to follow fresh storage data Thursday morning. “We’d also note that [Wednesday’s] bounce fits a weekly pattern, which has typically featured buying ahead of the weekly storage report followed by selling afterward. A break in that pattern would make a positive statement that the character of the market may be changing and the bearish gloom in market sentiment shifting, but we’d have more optimism about such a shift if we had some stronger heating demand behind it.”
Taking a look ahead of Thursday morning’s storage report from the Energy Information Administration for the week ending Oct. 8, Evans said he is expecting an 85 Bcf build, while a Reuters survey of 22 industry players produced an injection range of 66-97 Bcf with an average build expectation of 87 Bcf. The number revealed at 10:30 a.m. EDT Thursday will be compared to last year’s 60 Bcf build for the week and the five-year average addition of 64 Bcf.
Tom Saal, vice president of Hencorp Futures in Miami, is looking for November futures to move lower, then higher. In his work with Market Profile he identifies “value areas,” which act as short-term price objectives, sometimes reached within a few trading days or less. In a Wednesday morning note to clients he identified Tuesday’s value area at $3.591 to $3.554 and expects the November contract to test that range before moving on to test a second value area at $3.875 to $3.836.
For the remainder of the week he advises clients to closely watch the initial balance, $3.670 to $3.550. According to Market Profile methodology, a breakout above or below the week’s initial balance suggests that prices will continue to move in the direction of the breakout to specified targets.
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