With crude futures continuing to make new highs as violence in the Middle East escalated, natural gas futures also climbed Friday as August natural gas closed out the week on a strong note. Supported by significant heat in a number of U.S. regions, prompt month natural gas ended up settling at $6.347, up 21.8 cents on the day and 82.4 cents higher than the previous week.
Much like the rest of the week, August natural gas put in a steady climb Friday, reaching a high of $6.450 in the afternoon before closing lower. August crude once again was the story of the day as the contract reached a new all-time record high of $77.95/bbl before closing out the week at $77.03/bbl, up 33 cents on the day.
While a number of people in the market are tying the week’s strength in natural gas futures to the record-setting crude futures run, some brokers were not so sure. “If natural gas was really going to show any sympathy to the petroleum markets, it would have done it long before now,” said Steve Blair, a broker with Rafferty Technical Research in New York. “I don’t really think that is why natural gas was so strong this week. That is not to say that there is not any sympathy to the petroleum market’s strength, but I don’t think it was the main factor. Activity on the Nymex floor this week has been pretty quiet, even as the electronic trading platforms have seen record volume levels” (see related story).
Blair said he thinks the market just tripped certain buying triggers. “Natural gas futures broke below what I saw as support in the $5.75 area and that triggered some buying to come in,” he said. “Below $5.75 was a bargain number for buyers, who brought the market back up into its comfortable zone. Once we got back above and closed above $5.75, that number once again became a good support number. The market has really been just bouncing around.”
As for the $5.470 low from earlier in the month, Blair said while it wasn’t a typical bottoming pattern, it could indeed be a bottom. “I would not be weary of saying that $5.47 could be a bottom here, barring any large unexpected storage injections. If we were to get some big numbers going into underground storage, it could blow that low out of the water, but I don’t anticipate that happening,” Blair said.
Other industry insiders said natural gas was definitely “playing follow the leader” with crude. “The ‘follow the crude’ dynamic is now definitely in play,” a New York floor trader said.
Top traders see a surging bullish tide. “A renewed influx of speculative capital into the long side of the market was clearly in evidence [Thursday] when nearby futures managed to advance above expected resistance at the $6.00 level,” observed Jim Ritterbusch of Ritterbusch and Associates. He noted that in this type of framework, “bearish fundamental considerations can quickly take a back seat to geopolitical developments that impact petroleum prices and heating oil values.”
A back seat may not be far enough. According to a Bloomberg survey, crude oil may continue to rise this week on concern the conflict in the Middle East will disrupt shipments from the region. Twenty of 34 analysts and traders said prices will rise. Five projected a decline and nine said futures will be little changed. Last week 68% predicted an increase, the most bullish response in a year.
“We’re only a few headlines away from $100-a-barrel oil,” said Scott MacDonald, of Aladdin Capital Management of Stamford, CT. “A few cruise missiles, a few bombs going off, more partners getting involved in the process in the Middle East. All those things nudge oil higher,” he noted.
Near-term weather forecasts also support higher natural gas prices. AccuWeather in its latest six-to-10-day forecast said that major energy markets in the U.S. will experience above normal temperatures. Only southeast Arizona, southwest New Mexico, the Southeast and small portions of northern Montana will be spared.
A number of tropical waves in the Atlantic currently show no sign of development. Waves are found at 70W and 20N (east of the Dominican Republic), 54W and 12 N (east of the Windward Islands) and 30W and 15N (southwest of the Cape Verde Islands), according to AccuWeather.
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