After taking a mid-week breather to test the upside, near-month natural gas futures on Friday were back to the recent routine of probing support at $7. January natural gas futures closed out the week at $7.025, down 16.8 cents from Thursday and 13 cents lower than the previous week’s finish.
After trading lower in Thursday’s overnight Globex electronic session, the prompt-month contract opened Friday morning’s regular session without any real rally. The contract touched $7 support before closing out the day. After settling at $7.408 on Wednesday and reaching a high of $7.520 on Thursday, the return to $7 on Friday didn’t really surprise market participants, who hypothesized that the prompt month was simply defining its trading range.
“Using the November and December contract expiration prices of $7.269 and $7.194, I have come up with a reference point for the January contract of $7.230,” said Tom Saal of Commercial Brokerage Corp. in Miami. “It looks like the market has been oscillating around that number by a quarter in each direction. We seem to have found some sort of trading range and the market seems to be trading off of these mid-term forecasts. It is not watching the real near-term outlooks, but the market appears to be following the six- to 10-day and eight- to 14-day forecasts for trading indicators.”
As for support at $7, Saal said he sees it as pretty solid territory. “It has held so far, so it is going to take something extra to push us below that,” he said.
Commenting on the overnight slide in futures prices, the broker said he has always been suspicious of the overnight electronic session. “I am leery of reading too much into those sessions due to the lack of any real volume. However, we slid in overnight trading Thursday night, but when the regular session opened Friday there was no real rally, so it appeared legitimate.”
Other market insiders read a lot into Thursday’s storage report. The failure of the market to rise following Thursday’s release of bullish inventory figures suggests limited upside potential in the eyes of traders, yet they admit $7 is a likely support level. “As long as crude oil hovers over $90, $7 natural gas should hold. There is still lots of winter to go and some traders were saying Thursday’s draw would be around 130 Bcf. Since it came in at 146 Bcf, it shows there is a likelihood of further strong withdrawals down the road. I am of the school that $7 holds but gets tested,” said a New York floor trader.
A key assumption in the soft pricing environment is expected warmer temperatures for the last half of December. “After the stormy and cool conditions in the near term, the six- to 10-day forecast is dominated by warmth across much of the central and eastern states,” said Matt Rogers, meteorologist with MDA EarthSat. “That being said, both the American and European models are not as aggressive with the warming (as earlier forecasts). Any changes made to the cooler side were slight as the Pacific influence continues to support a warm regime for much of the nation.”
Others also see the market supported at $7. “As long as supplies remain at a large surplus against average levels, the futures should continue to shrug off any seemingly bullish storage data out of the EIA,” said Jim Ritterbusch of Ritterbusch and Associates. In a note to clients he said he sees “no market developments this week capable of swaying our opinion that the January futures contract [is] a trading affair between about $7 and $7.550. We still look for price consolidation between these parameters into the holidays.”
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