December natural gas posted a new low Friday as analysts factored in a continued weak technical picture along with a weather outlook that fails to even hint at seasonally cool temperatures. The number of rigs drilling for gas, however, posted a steep decline. December fell 6.5 cents to $3.584 and January skidded 5.1 cents to $3.696. December crude oil continued its march higher, adding $1.21 to $98.99/bbl.
Analysts were noncommittal on whether the day’s decline made any significant changes to the technical outlook. “We just completed an ‘ABC’ [corrective] formation, but I’m not sure that [Friday’s] slide has caused any major structural changes from an Elliott Wave perspective,” said a Washington, DC-based broker.
“We clearly have a strong counter-seasonal move now, and it does have the potential to get cold; it’s just that nobody believes it. No one is worried enough to launch a major buying campaign.”
Others suggest that the bottom in the natural gas market has yet to be determined. Tim Evans of Citi Futures Perspective in New York said in a note to clients that Friday’s slide is basically an extension of “its recent losses after Thursday’s larger-than-expected 37 Bcf net injection to U.S. natural gas storage. [That] reinforced the idea that production growth continues to outpace demand, weakening the supply-demand balance. It now appears that storage injections may stretch through November, both piling up a larger storage surplus and, in effect, shortening the storage withdrawal season. Prices are already at five-year lows for this point in the season, but that seems to be little support for the market at the moment. The downside remains open.”
The downside may not be as open as it seems. Baker Hughes reported another double-digit decline in the number of rigs drilling for natural gas. For the week ended Nov. 11 the number of rigs targeting natural gas fell by 30 to 877, and this follows a decline of 27 rigs in the prior week. A year ago the number of rigs drilling for gas stood at 955. Total active rigs in the U.S. fell by 10 to 2,016 but remained well ahead of year-ago levels of 1,685, and rigs drilling horizontal wells dropped five to 1,152, still greater than the 940 recorded a year ago.
Analysts see weakening prices as a response to a new and more mild weather regime. “This market is currently posting fresh lows on some weekend positioning and possibly on updates to the short-term weather views. Above-normal temperature expectations across the eastern half of the nation, particularly along the heavily populated eastern seaboard, have now been stretched out to the Thanksgiving holiday,” said Jim Ritterbusch of Ritterbusch and Associates.
Ritterbusch sees these temperatures as prompting additional storage injections during a month typically regarded as part of the heating season. “These forecasts, in turn, will tend to elevate storage levels through the balance of this month in forcing supply to a record level,” he said. “[Thursday’s] larger-than-expected 37 Bcf injection virtually closed the longstanding supply deficit against last year while stretching the surplus against [the five-year] average to 215 Bcf. Supply currently stands at 3.83 Tcf, just a notch below last year’s fall peak of about 3.84 Tcf. The market is currently discounting this expected record supply that should be developing as this month progresses. But at the same time, we feel that this discounting process has almost been completed.”
Analysis of heating load confirms Ritterbusch’ perspective on storage. Heating requirements are not the only determinants of natural gas injections, and the Northeast and Midwest are not the only sections of the country using natural gas, but Thursday’s 37 Bcf build was about 10 to 15 Bcf higher than normal, and forecasts of heating load for the populous East and Midwest markets indicate that storage injections for the week ending Nov. 11 may show another large positive variation to seasonal norms.
Heating degree day (HDD) requirements are expected to drop considerably for the week ending Nov. 12 compared to the previous week in major energy markets. Data from the National Weather Service (NWS) for the week ending Nov. 5 showed above-normal accumulations of HDD for New England and the Mid-Atlantic and near-normal tallies for the Midwest.
For the week ending Nov. 12, however, NWS predicts substantially fewer HDDs. New England is forecast to see 120 HDD, or 34 fewer than normal; and the Mid Atlantic is expected to have 113 HDD, or 28 fewer than normal. The Midwest is anticipated to have 122 HDD or 36 fewer than its norm. For the corresponding week last year 1 Bcf was withdrawn from storage, and the five-year average stands at a 10 Bcf build.
The Commodity Futures Trading Commission delayed the release of its weekly Commitments of Traders Report until Monday at 3:30 EST in observance of the Veterans Day holiday.
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