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January Adds A Few Pennies, But Meaningful Support is Scarce
While the January 2012 natural gas futures contract managed to eek out a 3.2-cent gain in Tuesday’s regular session to close at $3.128, bullish traders remain a rare breed as prices are still more than a dollar below where they were one year ago.
Adding to the price malaise is the current forecast for mild near-term winter temperatures, which also marks a significant departure from conditions found one year ago.
On Dec. 20, 2010, the January 2011 futures contract surged higher as market bulls were supported with forecasts that were looking chillier than they did just three days earlier. On that day, the prompt-month contract traded between $4.013 and $4.248 before settling at $4.237, up 17.1 cents from the previous regular session, and $1.109 higher than the January 2012 contract’s close Tuesday (see Daily GPI, Dec. 21, 2010).
Citi Futures Perspective analyst Tim Evans said futures stabilized in early Tuesday trade “as traders ponder[ed] whether the market has fallen far enough to constitute a bargain.” However, said mild weather forecasts might make it difficult for bulls or bargain hunters to find traction.
“The fundamental situation continues to feature supply growth in excess of demand, with the rising storage surplus to show for it,” Evans said. “With temperature forecasts featuring warmer than normal temperatures in the weeks ahead, it looks as though the official arrival of winter will offer little fresh support.”
From a seasonal price movement perspective, natural gas will typically form a bottom sometime in September and rally into December. Traders will often abide by the trading rule “don’t be short natural gas after Labor Day.” That hasn’t worked this year, but the seasonal advance is often followed by an equally impressive seasonal decline into February.
“Natgas had none of the usual September-to-November pre-season rally. The next seasonal event in natgas is typically a December-to-February drop,” said Walter Zimmermann, vice president of United-ICAP. “That event appears to have gotten off to a great start.”
Zimmermann cautions, however, that there is still a substantive case to be made for market bottoming. “Both spot natgas and the natgas 12-month strip are deeply oversold; both spot natgas and the natgas 12-month strip are giving bullish RSI [relative strength indicator] divergence signals on both daily and weekly charts, [and] natgas is down to only 16% bulls on the Market Vane ‘Bullish Consensus.’
“The last time natgas fell to only 16% bulls it rebounded from $3.446 to $3.978, and yet despite all of the above, both natgas and the strip still appear to be headed lower.”
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