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NatGas Futures Trading Cheaper than Coal for First Time Ever
February natural gas settled at a new 10-year low Wednesday as traders hinted that Thursday’s release of Energy Information Administration (EIA) inventory figures would likely prompt further declines even if the data was bullish relative to expectations.
At the close February had fallen 1.6 cents to $2.472 and March had retreated 1.2 cents to $2.516. February crude oil fell 12 cents to $100.59/bbl. Prompt-month natural gas futures haven’t settled this low since the April 2002 contract closed at $2.470 on March 5.
“There’s really no push to the upside. There is plenty of gas and everyone is looking for a draw in [Thursday’s] inventory report of about 90 Bcf. Last year it was in the 200 Bcf range so 90 Bcf is no comparison,” said a New York floor trader.
“There was a little push to the upside, but this market can’t get out of its own way. Depending on the [storage] number…we might have lower numbers still. I think a lot of [Thursday’s] report is already incorporated into the market, but even if it comes in a greater draw than expected, that’s not going to make any difference.” He added that the market may move lower once the number came out, since it was just one more factor that would no longer be able to impede the overall trend lower.
“There is nothing in the market’s favor at this point. There is no weather to speak of and the fundamentals just get worse.”
The floor trader’s estimate of a 90 Bcf draw is identical to a Reuters survey showing a 90 Bcf average from a sample of 24 analysts and traders. The range on the survey was a draw of 74 Bcf to 125 Bcf. IAF Advisors in Houston is looking for a decline of 81 Bcf, and a Bentek Energy analysis showed a pull of 76 Bcf. Last year at this time 228 Bcf was withdrawn, and the five-year average stands at 162 Bcf.
Nymex watchers have also been stunned by the events of recent days. Matt Zeller, a market analyst with INTL FCStone, pointed out that front-month natural gas futures prices have recently fallen below front-month Appalachian coal futures prices for the first time in history. He noted that front-month coal was recently $61.50/ton, which equates to $2.56/MMBtu.
Analysts are keeping a sharp eye on the weather and the breadth of expected mild conditions. “Consensus forecasts still favor above-/much-above-normal temperature patterns through month’s end,” said Jim Ritterbusch of Ritterbusch and Associates. “The fact that these mild trends extend over a broad swath of the country is adding to the ongoing bearish momentum.”
Wednesday’s forecast showed continued warmth up to 15 days out at eastern and Midwest points. MDA Information Systems, a Maryland-based forecasting firm predicted above- to much-above-normal temperatures in the 11-15-day window east and south of a broad arc extending from Minnesota to Colorado to northern California. Only Montana and the Pacific Northwest were expected to be below normal. “Changes were mixed in this period, with a faster return of cold into Western Canada anticipated as well as more warmth across the South.
“A key area to watch remains the North Pacific — if the trough near the Gulf of Alaska erodes faster as some of the models are now suggesting, more cold opportunities could present themselves downstream over the US. However, this should be slow to happen if it does at all, which keeps warmth in play at least through most of this time frame across the South and East. Models are still in fairly good agreement on the overall pattern here.”
“Although our stated downside target of $2.40 remains on the table, we are certainly not ruling out price declines to below this level unless the weather forecasts begin to shift during the balance of this week,” said Ritterbusch. “Otherwise, this market could easily slide through the September 2009 lows just as it did last week when our $2.76 support was violated.”
Tuesday’s double-digit decline as well as Wednesday’s soft finish took out a major long-term trend line, and analysts see a quick rebound necessary to give any hope to the long-term upward trend in natural gas prices. Without a quick turnaround, near-term objectives at least 40 cents lower come into play. “On seven prior occasions going back, the bears tried to push natgas below major trend line support,” said Brian LaRose, a technical analyst with United-ICAP. “All seven attempts resulted in a sharp reversal. Will the eighth test follow the same trend? We shall find out.
“Fail to make an immediate turn higher, and this major trend line will be officially broken. Our next downside objective in this case: $2.087-1.964.”
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