After recording a high of $7.550 earlier in the session Friday, March natural gas futures took a plunge late in the session on a run of selling, recording a low of $6.900 before going off the board at $7.112, down 34.6 cents on the day and 7 cents lower than the previous Friday’s close. Taking over as prompt month over the weekend, the April contract on Friday closed 23 cents lower at $7.313.
“It is kind of the same old story. We had the opportunity to go higher, but when we tried to go higher we couldn’t do much with it,” said Tim Evans, an analyst with IFR Energy Services. “As for the late session drop, I am not sure why the open interest would hold so high so late into the game. I guess people had strong views on whether the market was going to spike or fall apart into this time frame. Perhaps there were more producers than usual willing to make delivery.”
Turning attention to the April contract, Evans said the new prompt month’s direction remains somewhat unknown. “I like to say that markets love to be ambiguous,” he told NGI. “Friday’s action in the April contract was entirely inside Thursday’s range, which in itself is inconclusive. We might hold April’s $7.11 low. However, we might instead hold the prior support on March down around $6.97 to $7.00. The larger trend here is still clearly lower. It is more of a question of when the major downtrend fully resumes…as opposed to if it will resume.”
Evans said the thing the market needs to remember is that there is not a lot of February left as far as heating demand goes. “Even the recent weather forecasts have not been unanimously supportive,” he said. “There is no real clear price guidance as far as the weather is concerned. However, there is very clear guidance from the storage situation.”
Rafferty Technical Research broker Steve Blair said the run at the end of the session was typical expiration day activity. “While I don’t know who was doing the selling in the last half hour, expiration day always seems to have a wild final 30 minutes because of the closing range and the expiring contract.”
Blair said he still sees bearishness as well. “The fundamentals of the market show that there is no reason for natural gas prices to be high,” he said. “Storage is well above the five-year average and there are only six weeks left in the traditional heating season. I think the market seems to have found a real good support area in that $6.90 to $7.00 range, so we could continue to bounce off of those technical numbers.”
Following the Energy Information Administration’s (EIA) report Thursday that 123 Bcf was removed from underground stores for the week ended Feb. 17, working gas in storage stands at 2,143 Bcf, a record high for this time of year. The closest comparison is the 2002 season, when 2,036 Bcf was in storage on Feb. 15, 2002.
Natural gas traders continue to keep a sharp eye on petroleum developments. The alleged terrorist attack on Saudi Arabia oil infrastructure Friday sent April crude futures into the stratosphere, but natural gas declined to join the club. April crude jumped $2.37 on Friday to close at $62.91/bbl, even though the attack was a failure.
“While I understand the crude market reacted to reports of a terrorist attack on oil infrastructure in Saudi Arabia, when the market learned the attack was actually on a refinery…and it was unsuccessful, crude futures should have come off,” Blair said.
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