Backed by early cash market strength ahead of what is expected to be a fairly frigid weekend, November natural gas futures thrusted higher in Friday trading Pushing higher for much of the day the prompt-month contract put in a high of $4.880 in the afternoon before closing out the regular session at $4.781, up 29.9 cents from Thursday’s finish but only 1.1 cents above the previous Friday’s close.
“The futures strength Friday morning is directly related to the cash market, I believe. The Henry Hub was up 40 cents at $4.28 in early trading,” said Ed Kennedy, a broker with Hencorp Futures LC. “People are looking at the weather for the weekend. Forecasters are calling for a lot of snow inland, and it is pretty cold in a number of high-gas usage regions. Temperatures are expected to moderate [this] week so we’ll probably get the ensuing selloff then.”
Cash values settled down as the day wore on. The Henry Hub for delivery Saturday through Monday ended up averaging $3.94 on Friday, up 6.4 cents from Thursday, according to IntercontinentalExchange.
Kennedy said futures resistance is still locked in at $5.050 with support coming in the upper $4.30s. “We were on the low end on Thursday but saw a pretty good rebound,” he said.
Kennedy will join his colleague Tom Saal in hosting their popular “Where’s the Market Going and What Can You Do About It?” seminar Nov. 19-20 in Houston. Visit https://workshops.gasmart.com for more information.
The broker said to navigate a market as topsy-turvy as natural gas futures, participants have to use all of the tools available to them. He advised options as a strategy. “Implied volatility is a little on the high side, so that makes it expensive,” he said. “I would only protect the downside with puts…or probably put-option spreads where you buy the nearby contract and sell the deep out-of-the-money contracts to finance it. On the upside, I really don’t want to sell anything and it is a little pricey to buy the calls, but I would do it for December or January and then probably use futures.”
The broker added that he continues to have a problem with the preoccupation with storage levels being at an all-time high. “Yes, we are going to have a record amount of gas in storage, but the question is whether that amount of gas can handle a below-normal temperature winter. The answer is, ‘no.’ The gas that is needed to handle a below-normal winter is found from production, but the rig count is still around 700. Anything below 750 is a problem.
“The good news is it is still early yet. However, if we look over the fence into November in a week or two and see a below-normal forecast, then watch out. It could be a bumpy ride. Right now a lot of the independent forecasters are saying we could be in for the coldest winter in 10 years. However, that is a long-range forecast, so it has to be treated as such. Other forecasters are drawing comparisons to the 1976-1977 winter, which raises my eyebrows. I remember that one. It was blinking cold that year.”
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