After pressing lower at the open, natural gas futures rebounded modestly Tuesday as traders played it safe amid a changeable fundamental and technical landscape. However, even the late buying surge was not enough to propel prices above Monday’s close, leaving the January contract with its second-straight losing session. The prompt month closed at $2.563, down 7.1 cents. Estimated volume of 110,574 was extremely high considering the relatively small price move and the absence of market-maker Enron. Historically, natural gas averages a volume of about 75,000 contracts, and 100,000-plus volume days are usually only seen during the last three days before a contract expires.
Several traders were quick to note that the market was gunning for stops believed to be located below support at $2.50. After opening at $2.56, it took the January contract only 35 minutes to trade to new 35-month lows and test the $2.50 level. However, sellers were unable to demote prices through support and the market rebounded tentatively for the rest of the session.
For Peter Hattersley of New York-based Rafferty Technical Research, a possible explanation for the strength was the price-supportive weather forecasts issued throughout the day Tuesday. While not calling for another Ice Age, the latest governmental and private forecasts show some cooler weather moving into the eastern U.S. by mid-month. “If you don’t get the cold, we will break below $2.50 and probably test $2.11. If the colder weather moves in, however, we could rebound a little off the $2.50 level,” Hattersley said.
The first sign that the market is beginning to price in the cold weather will be a narrowing of the January-February basis, which currently stands at 13 cents. “If you see January move above February, then you know you have a weather-driven rally,” he continued.
Looking ahead toward today’s release of fresh storage news, Tim Evans of New York-based IFR Pegasus looks for a net withdrawal of 20 Bcf to fall short of last year’s 73 Bcf takeaway. And going forward, the comparisons won’t get much better for bulls. “Mild temperatures this week guarantee that we’ll fall even farther shy of matching the 158 Bcf comparison in next week’s report. Comparisons won’t come any easier to beat until the week ending Jan. 11, 2002, giving the market plenty of time to crater,” he said.
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