Spiraling lower for the fourth consecutive regular session, November natural gas futures on Tuesday put pressure on longstanding support at $6.750, which proved bendable but not breakable. The prompt-month contract reached a low of $6.640 before finishing out the day at $6.761, down 13 cents from Monday’s close.
The November contract has dropped 69.7 cents over the last four regular sessions while transitioning from testing resistance at $7.500 to support at $6.750.
“We finally gave up the ghost on our bullish position Tuesday even though the day was just another death by paper cut session,” said a Washington, DC-based broker. “We were down 18 cents at one point, down by 4 cents at another point and ended up 13 cents lower from Monday. We are happy to be short December from $7.500 and getting out of our November positions that we were long on.”
The broker noted that futures are clearly stuck in a range. “The bulls tried to run it through $7.500 over the last week or so and couldn’t get it, so now we are right back down to the bottom of the range near $6.750 and now the bears will try to run it through,” he said. “It kind of ticks me off because my [trading] system went short even though we are only just sitting at support. What can you do…you have to follow your system. We have been oscillating in this range between $7.500 and $6.750 for awhile now. While we traveled below $6.750 during Tuesday, we settled just above it. If the $6.750 level doesn’t hold Wednesday, then I think we will probably push lower toward the $6.250 to $6 area, but I don’t know whether the November contract has enough time left to get down there.
“There really is not much new information out there for the market to feed off of. AccuWeather.com meteorologist Joe Bastardi just released his warmer than expected winter forecast Tuesday, but it did not appear to be much of a market mover from my vantage point.”
In the forecast (see related story), Bastardi said this winter will be warmer than last winter, especially in the second half of January and February when last winter was at its coldest. He added that the December-February period may be one of the top 10 warmest winters ever for the southeastern United States, with heat centered over the Tennessee Valley and the Carolinas.
Natural gas futures have been caught in a tug-of-war between well documented bearish fundamentals of abundant supply, a tropical storm season that had little Gulf impact and moderate weather, versus a supportive petroleum complex that is still trading at $80-plus per barrel. December crude futures on Tuesday closed at $85.27/bbl, down 75 cents from Monday’s finish.
Some top traders see no immediate collapse in natural gas prices. “With oil prices showing signs of recovery, downside possibilities in nearby natural gas will likely be restricted to about the $6.700 area,” said Jim Ritterbusch of Ritterbusch and Associates. He conceded that an eventual decline to the $6.300 area is still a possibility prior to the November futures expiration on Monday. “Such a development will likely require a bearish shocker in Thursday’s storage report or a sizable plunge in physical prices.”
Bulls, however, are undeterred. Phil Flynn of Alaron reports that he was stopped out on a long November natural gas trade from approximately $7.30 at approximately $7.20. “Buy December natural gas at $7.20 with a stop at $6.90,” he said in a note to clients.
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