Filling in the gap from the last week of December’s low trade, February natural gas ran up to notch a $6.10 high in Friday morning trade before zigzagging for the remainder of the session. Futures appeared a little confused during the session as scattered weather forecasts pointed to cold weather penetrating the East following the weekend. The prompt month ended up settling at $6.001, down 4.8 cents on the day and 14.8 cents lower than Thursday’s $6.149 settle from the previous week.
“February natural gas futures ticked just to $6.10 before turning lower today, suggesting that the rally objective for more than a few traders was simply to fill in the price gap with [the previous] week’s low trade,” said Tim Evans of IFR Energy Services. “With temperatures in the East particularly expected to remain on the warm side, the market lacks a credible threat to its large remaining year-on-five year storage surplus.”
Evans said a “flush” below last Monday’s $5.71 floor would confirm the resumption of the larger downtrend, with declining channel support at $5.28 as the next significant support to watch for. “We also see projected buying at $5.10 and the 2003-2004 lows at $4.39-4.52 as potential objectives, and not necessarily a firm floor either.”
He noted that with the current excess in natural gas storage supplies, it is also difficult to make a fundamental argument for higher prices when the market still is relatively high on an historical basis and prices are still riding well above their $4.72 five-year average price. “The fact that it’s winter does have something to do with that, but with just another 11-12 weeks left in the typical withdrawal season, we think the market will soon be looking ahead to spring,” Evans added.
Cold weather, or the lack thereof, has been the hot button topic of the last couple of months. Without any real prolonged cold runs to date this winter, natural gas supplies have remained more than ample. While temperatures have been 10-20 degrees above normal for much of the East Coast thus far this year, change is on the way, says Edward Kennedy of Commercial Brokerage Corp. in Miami.
“The National Weather Service (NWS) continues to call for above normal temperatures in the eastern half of the country, but several of the private forecasters are now calling for a return of below normal temperatures,” Kennedy said, referring to the NWS report released last Thursday.
Accuweather Senior Meteorologist Joe Bastardi is quick to agree with Kennedy’s assertion and looks for a “superfront” of cold air to descend from Canada into the Midwest and the East Coast this week. “We have a weak El Nino and plenty of frigid air located just to the north of us in Canada,” he said. “That is an invitation for trouble later on in the winter.
“We will see some very warm temperatures [this] week followed by the coldest air of the season,” Bastardi added. “The temperature change may be on the order of 50-60 degrees within a 24-hour period, with highs in Chicago and the Ohio River Valley in the 50s on Thursday, followed by lows in the single digits Friday night and Saturday.”
For Kennedy, however, it will take more than a few below normal mercury readings to turn him bullish. “So its going to be cold for a few days…great,” Kennedy said. “The question is how long will it stick around? We certainly have enough gas in the ground to withstand at least several days of chilly weather.”
But for Bastardi, the same weather-pattern stubborness that brought the West cold temperatures for much of the last month is likely to do the same in the East. “Once the trough sets up in the East, it will stick around for a while,” Bastardi countered. “I would say it will mean below normal temperatures in the East for the rest of January and on into February.”
While the latest NWS six-to-10-day outlook released on Friday calls for temperatures in the East to remain above normal for this time of year, there are signs of change on the horizon. The NWS’ eight-to-14-day outlook calls for a majority of the country to experience normal temperatures for the season, with California and a small sliver of New England expected to see above normal readings, while the Great Lakes area plunges into colder than normal territory.
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