NGI Archives | NGI All News Access
In Concert with Oil, Gas Futures Funnel Lower into Bidweek
Amid easing concerns over a heating oil crisis this winter andsofter crude oil prices, natural gas futures were lower for thethird session in a row Friday as longs headed for the exits aheadof the weekend.
November crude oil was off $1.32 or 3.9% at $32.68, whileOctober natural gas slipped 15.6 cents or 3% to close at $5.131.
After peaking at nearly $38 earlier in the week, crude oiltumbled lower under heavy selling pressure as traders got the newsit was highly likely the U.S. would tap into emergency reserves ofoil. After the markets closed Friday, President Clinton released 30million barrels of oil from the Strategic Petroleum Reserve.
For Tim Evans of New York-based Pegasus Group, there are twoways to look at Friday’s announcement. From a psychologicalstandpoint, he fears the announcement might be bullish in the shortrun. “This is a perfect example of sell the rumor, buy the fact.The market has sold off on the expectation of this announcement.For local traders that thrive on chaos, this might be anopportunity to try and take the market higher only to turn aroundand sell it lower. You also have to ask yourself how does the30-million-barrel release compare to what was already factored intothe market, and the answer to that has to be that it [30 million]was on the low side of expectations. The New York Times coverage[Friday] had it that Secretary of Energy Bill Richardson wasadvocating a release of 60 million barrels.”
However, from a fundamental standpoint, he admits it will likelyhave bearish implications in the intermediate term as the oil isreleased on the market over the next month. “You are taking 30million barrels of oil and adding it to the current API inventoryof 285 million barrels. This uptrend in inventory can only have oneeffect on prices. I would look for the price of oil to reach anintermediate low sometime in the next month at between $28 and $30per barrel.”
While historically the correlation between crude oil and naturalgas prices has not been exceptional, lately the two have beentrading almost 1 to 1, as both commodities recently hit 10-yearhighs last week (all-time high for natural gas) before losingground ahead of the weekend.
“These markets are in phase right now, not only from afundamental and a seasonal perspective, but they are also in synctechnically,” adds Evans. And while he is right that bothcommodities are heading into their key demand period with limitedsupply, sporting strong uptrends on the charts, there is one keydifference that was crystallized in a response by Senate EnergyChairman Frank Murkowski, a Republican, to the President’s moveFriday.
“My question for the Administration is what political ploy dothey intend to perpetrate when the American public realizes thereis no strategic petroleum reserve for natural gas? Yes, there are10 million homes in this country that heat with fuel oil, but thereare 56 million homes that heat with natural gas. Natural gassupplies are lower than fuel oil and prices are even higher.Residents will pay from 25-40% higher prices this winter. What willthe Administration answer be to these families when they realizenatural gas supplies can’t come from the Organization of PetroleumExporting Countries? I suppose it will be ‘big natural gas’ thatwill have to be investigated next.”
However, now that bidweek is upon the natural gas market, it maybe susceptible to other factors than crude oil sympathy buying andselling. First and foremost is the last three-day settlementperiod, which runs from Monday through the October expiration onWednesday, and has historically been a period that has seen wavesof buying and selling from commercial traders.
“Trade typically waits for the 3-day to either liquidatepositions or cover shorts. That way, they can more closelyreplicate the last three-day average.” In this case, Evans believesthe pressure will come in the form of selling as traders that havepropelled futures higher over the past month, liquidate theirholdings ahead of expiry.
On the technical front, Peter Hattersley, of New York-basedRafferty Technical Research notes the October contract is perchedprecariously just above key technical uptrend support, which Fridaycame in at $5.125. A break of that level, would likely result in atest of a tight support line drawn on the weekly chart at $5.07.Resistance for October is seen at the contract’s high of $5.385.
©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.
© 2023 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |