After finding support as low as $7.04 and $7.05 numerous times during the regular session, December natural gas futures in the afternoon decided to test the upside instead. With market watchers eagerly awaiting confirmation of the first natural gas storage withdrawal of the season, the prompt month squeezed higher to settle at $7.283, up 15.9 cents for the day.
Bouncing off of the $7.00 area for the third straight day left some observers wondering whether the support might last. Others thought sympathy with heating oil strength was more responsible for the increase Wednesday.
“The natural gas market often takes its emotional cues from heating oil, but today’s more subdued performance suggests natural gas traders are just hunkered down waiting for Thursday’s DOE storage report,” IFR Energy Services’ Tim Evans told NGI. “It’s tough to get a clean read off of Wednesday’s price action because I think a lot of it was simple book squaring ahead of Thursday’s natural gas storage report. In addition, natural gas was helped higher because it was getting a little bit of sympathy with the performance from heating oil, which climbed over 8 cents on the day.”
However, Evans pointed out that natural gas’ modest gain could not compare to the 6% gain in heating oil. “From that standpoint, the smaller gains in natural gas are a little bit disappointing,” he said. “I just think we are waiting to see how the storage report comes in and whether it does us any good in terms of fundamental support.”
Evans said he thinks the report will be nearly unchanged, although he allowed that the consensus is for something near the 15 Bcf five-year average withdrawal. “Although more supportive than our own estimate, we note the consensus still illustrates the larger problem facing the market, that it takes cooler than normal temperatures like we had last week just to produce a neutral storage outcome,” Evans said. “While the week-to-week changes in storage may drive the initial reaction to the data, the larger problem will be the same disparity between the remaining year-on-five-year average storage surplus and the high level of prices.
“It’s going to be hard for prices to get traction to the upside because temperatures are inconsistent, and that’s going to mean that our storage data here over the next couple of weeks is also going to be inconsistent,” he added. “The big elephant under the carpet is the substantial storage surplus that we have here, which really isn’t consistent with the price levels we currently have. Big bites need to be taken out of this 8.7% excess in order to avert a further price slide in our view.”
He noted that a drop through the potential floor of $7.00 keeps the downtrend intact, pointing at the $6.505 spot low from Oct. 13. If the $6.505 is taken out, Evans said the $5.93 December floor from Sept. 16 becomes the next target.
“In order to at least buy some time, the market needs to rebound past Tuesday’s $7.569 high to establish a base of support for probing the $7.75 high from Nov. 10 or the downtrend resistance now falling through $7.92,” he said. “The market is working on some consolidation here that looks like a continuation pattern now, but the odds tilt more in favor of a bottom the longer the market holds its own.”
Speaking in a teleconference on Wednesday titled “Managing Natural Gas Price Risk,” Commercial Brokerage Corp.’s Tom Saal said he believes the market will see a small withdrawal Thursday morning. “So far this month we haven’t seen anything in the way of withdrawals compared to a year ago, so that means that there is obviously more gas available later [in the season].”
Saal touched on the factors impacting natural gas prices and how to use them in managing price risk. He will be going into more depth on Dec. 8-9, when he will be teaming with Commercial Brokerage’s Ed Kennedy and Sandy “Trot” Goldfarb of Energylinks Futures LLC. The two-day workshop will take place at the Nymex in New York and will include the opportunity to have a bird’s eye view of the gas trading pit when the weekly EIA storage data is released Thursday.
For a complete program description, or to register online for the Workshop at Nymex, visit https://gasmart.com/workshop/.
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