Backed by cold forecasts for the rest of February and surging petroleum prices, the March natural gas futures contract continued their recent impressive show of strength Wednesday by reaching a high of $9.110 on the day before retreating. The prompt-month contract recorded a low of $8.910 before settling at $8.965, down 1.2 cents from Tuesday’s close.
Traders took away two things of note from Wednesday’s trade. Not only did March natural gas post a new high for the move, but it also took no real corrective action to Tuesday’s 31.7-cent spike. The $9.110 high on Wednesday took out the old $9.050 high from back on Nov. 30, 2006, which traders have targeted as a key resistance level.
“I’m not surprised by this recent gas price strength one bit,” said Tom Saal of Commercial Brokerage Corp. in Miami. “Sooner or later, fund buying had to start coming in. The funds have been so short for so long, it was only a matter of time before they started heading to the till. Throw in some cold weather and that spells rally.”
The fact that prices are lofty while natural storage levels still appear comfortable also does not surprise Saal at all. “You have to remember that storage is potential supply. If they pull it all out, it can affect price, but as long as they keep it in the ground it is more a comfort level about physical supply than it is apprehension about future supply,” he said.
Saal said the market’s past behavior at this lofty price level leads him to believe that there could still be some significant upside left. “I think some of the technicians are waiting for a settlement above the prior high of $9.050. In the past when we trade in this area, if the market chooses to go higher, it has had some room to run. Now we have traded higher than that $9.050, but we haven’t settled above it. Some people might call that a failure, but we are still hanging around so I don’t think anything has been decided. Above $9.050, my Market Profile has $9.500 as the next key number if we start to gain some momentum.”
Looking at Thursday’s storage report for the week ended Feb. 15, Saal said he is expecting the Energy Information Administration to report a 175 Bcf withdrawal. A Reuters survey of 20 industry players produced a withdrawal range of 158 Bcf to 184 Bcf with an average expectation of a 174 Bcf drop. Golden, CO-based Bentek Energy said its flow model also indicates a withdrawal of 174 Bcf, bringing stocks 18.8% below the five year high and 5.7% above the five-year average.
The number revealed at 10:30 a.m. EST will be compared to last year’s date-adjusted 228 Bcf draw and a five-year average pull of 160 Bcf.
In both the short and intermediate time frames weather bulls can expect supportive cold and continued wintry conditions. The Weather Channel (TWC) predicts that in major eastern energy markets below-normal temperatures will prevail through the weekend.
TWC forecasts that a swift-moving system will bring a chance of snow to the interior Northeast, while lake-effect snows are expected to continue near the eastern ends of Lakes Ontario and Erie. They are expected to decrease in intensity somewhat as the low passes by, but by Friday an approaching frontal system is forecast to bring a chance of ice and wintry mix to the Mid-Atlantic with snow in New York and Southern New England. High temperatures are expected to remain below average until the weekend, the forecaster said.
Longer term, the National Weather Service is looking for a cold eastern half of the country and a warm West. Wednesday’s six- to 10-day forecast covering Feb. 26 through March 1 shows the entire country east of a straight vertical line extending north from the very western tip of Texas as below normal. West of that line can expect mostly above-normal temperatures.
Short-term traders suggest that Tuesday’s 31.7-cent gain in the March contract got a healthy boost from market dynamics and oil trading rather than any change in underlying fundamental factors. “I think the day’s rally was a combination of the strong oil market and short-covering,” said a New York floor trader. “It looks like traders are getting stopped out here and with the other markets being so strong it is holding up natural gas.”
Crude recorded another day of records Wednesday as the March contract hit a new all-time high of $101.30/bbl before closing out the day at $100.74/bbl, up 73 cents over Tuesday’s finish.
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