Finishing higher for only the second day out of eight, December natural gas futures on Monday climbed 45.8 cents to settle at $11.873. Despite the sizeable jump, one broker said the downtrend is still healthy, adding that Monday’s price action was just a short-covering rally.
After beginning the day lower following a sell-off in overnight Sunday Access trading, the prompt month tested as low as $11.03 Monday morning before climbing higher for the remainder of the session. December natural gas peaked at $11.90 just before settling.
“The downtrend is still intact,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “All we had Monday afternoon was a short-covering rally in a bear move. Everyone wants to know why the market rallied. Kennedy answered the question with another. “If you’re short, how do you take a profit?”
The broker noted that nothing has changed in the market to lead him to believe the bear move has been broken. “The bearish weather forecast hasn’t changed and there is no storm activity in the tropics. All Monday was is a short-covering rally,” he reiterated.
Looking at the near term, Kennedy said he sees consolidation and then more downside. “We will probably test $10 by the end of the week,” he said.
Prevailing weather patterns may cause bears to think twice about going into hibernation. AccuWeather points out that the jet stream is barreling across the U.S. at the Canadian border, and this enables warm air to flow northward into the nation’s midsection. From there, the upper flow carries mild air to the East Coast, and this results in the entire southern half of the country basking in sunshine with highs in the 70s and 80s. The northern half of the country “tops out in the 50s and 60s.”
Top traders were on the lookout to see if Monday’s morning weakness would breach near-term technical support levels. “While we still expect near term support to develop above $11.00, this market will remain on the defensive with each successive day of extended mild temperature projections,” said Jim Ritterbusch of Ritterbusch and Associates.
Natural gas bulls looking for help from the petroleum complex may have to look long and hard as petroleum price action predictions appear mixed. Last week in a Bloomberg survey of 52 oil traders and analysts, 25 of the 52, or 48%, said prices would fall this week. Fifteen, or 29%, said oil would be little changed and 12, or 23%, forecast a gain. The majority was correct, at least on Monday, as December crude dropped $1.11 to close below $60 at $59.47/bbl.
Bulls can take some heart in that the Commodity Futures Trading Commission reported Friday that noncommercials held a hefty net short position of 35,936 (futures only) contracts as of Nov. 1. The most recent period that noncommercials were that short was on May 31 when they held a net short position of 45,334 contracts. Nearby futures settled at $6.379 on May 31, but by June 30, nearby futures had advanced to $6.981.
As for shut-ins in the Gulf of Mexico, production continues to come back online, slowly but surely. The Minerals Management Service (MMS) reported Monday that shut-in gas decreased to 4.482 Bcf/d, down from the 4.569 Bcf/d that was reported shut in on Friday. The Gulf’s normal daily production is 10 Bcf/d. Cumulative lost production now stands at 414.3 Bcf.
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