It appears the natural gas bulls aren’t even allowed to hold on to a shred of price rebound hope as the recent signs of a firming crude futures market were proved incorrect Tuesday by a more than $4/bbl drop. Faced with the economic recession, plenty of gas and a forecasted warm-up in temperatures, February natural gas futures traded a slim 12.8-cent range before closing at $4.503, up 1.3 cents from Monday’s finish.
“The bulls don’t have a whole lot going for them right now. We will see if there is anything out there that has the capability of changing the current sentiment. As of right now, I just don’t know what that could be,” said a Washington, DC-based broker. “There are still companies out there drilling wells and finding gas. These guys have the situation where the oil and gas man inside them loves finding the stuff, but they wish they were making the discoveries back when gas was $14. Plentiful production probably has had something to do with these lackluster storage withdrawals we’ve seen. It was cold out there, but we just had too much gas coming in. Sure, they’ve taken a lot of rigs down, but there are a lot of wells that are still producing. You just can’t say anything bullish about the supply/demand equation at this point.”
Looking at potential support lines, the broker said with $4.600 basically already broken, the next targeted key price levels are $4.200 and then $4.050. “If we get below $4.050, then we’re down into those $2 handles that people always throw out there,” he said. “We have some really big numbers down here. Also of note is that we have been very busy buyers for our end-users in this sell-off. A lot of people have been locking in gas, but not enough to spark a rally or move this market up, obviously.”
Some industry experts who had been looking to crude futures over the past few days for support saw that oasis all but disappear Tuesday. Some market experts had listed the $32.40/bbl and $32.70/bbl lows of the last several weeks as a double bottom, noting that a rebound was more than likely. On Tuesday, March crude dropped $4.15/bbl to close at $41.58/bbl.
“Crude looks like it might be headed back to test its lows and attempt a triple bottom,” the broker said. “We are bearish on crude, so we think it will go back and test those lows. I’d be short here and try to pick up five or six bucks on it. I think we’ll take out the low from mid-December. With that in place, it is tough for natural gas to rally.”
Contrary to some analysts who look for the market to continue lower as cold weather dissipates and the economy shows little likelihood of generating any improved industrial uses of natural gas, adherents of the Market Profile methodology noted that Monday was a “neutral day,” and “neutral days beget neutral days, and the market is in a period of indecision,” said Tom Saal of Hencorp Becstone LC in Miami. He did admit that the market had breached major market support at $4.600, but was somewhat circumspect about further declines.
Weather bulls continue to hold out hope. Forecasts continue to show cold weather enveloping eastern energy markets. According to forecaster WSI Corp. of Andover, MA, colder-than-normal readings are expected to encompass most of the eastern U.S. over the next six- to 10-days. Warmer-than-normal readings are anticipated over most of the western half of the country, and anomalies as warm as eight to12 degrees above normal are anticipated over the northern Plains.
The National Weather Service (NWS) forecasts above-normal heating requirements for the East and Midwest through the end of the month. For the week ending Jan. 31 the NWS predicts that New England will receive 312 heating degree days (HDD), or 29 more than normal, and New York, New Jersey and Pennsylvania will shiver under 295 HDD, or 32 more than normal. The industrialized Midwest from Ohio to Wisconsin is expected to endure 330 HDD, or 38 more than normal.
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