December natural gas suffered a bruising double-digit loss Tuesday in what observers noted was at least a temporary joining of hands with free-falling petroleum and Greece-centric equity markets. At the close December had fallen 15.3 cents to $3.781 and January had retreated 13.6 cents to $3.920. December crude oil dropped $1.00 to $92.19/bbl; the Dow Jones Industrial Average lost 297 points to 11,658, and the Standard and Poor’s 500 Index shed a whopping 35 points to 1,218.

Analysts also see little chance of a seasonal price advance. “Natural gas is supposed to start rallying from Labor Day into Thanksgiving, and the rally is at best already a month late,” said Walter Zimmermann, vice president at United-ICAP. “What I have found over the years is that the later a seasonal rally gets under way, the weaker it tends to be. This one barely looks like a rally. It’s been slowly crawling higher for five weeks now with the emphasis on slowly.

“Generally, when natural gas puts in a seasonal low, you know it. It tends to leap higher. That said, this recent low was from the week of Oct.14, If we go back one year to 2010, natural gas didn’t bottom out until the last week of October, and then it made up for lost time from $3.21 to $4.90.

“Already there are dramatic differences to that event. That first week up [October 2010] was a huge move, and it never looked back. Now it’s just moving like a glacier. Could we have something resembling a seasonal event? We could see $4.40, but I would be surprised to see much more than that because the financial markets are going to start unraveling pretty soon. While natural gas is one component of the energy complex that is most independent from economic expectations, nothing is going to be immune.

“I would be surprised to see $4.40 before it keels over and heads south.”

Zimmermann feels that 2008 might be a better analog year for comparing natural gas and financial markets. Spot natural gas peaked July 2 that year at $13.694 after following crude oil higher before beginning a long slide to $5.622 by Dec. 31. Stock index futures as measured by the Standard and Poor’s 500 peaked at 1,440 on May 19, but the collapse of the housing bubble and related decline in equities saw the Index at 900 by the end of the year.

Others see the day’s decline as related to a free-falling stock market as well. “The natural gas market has come under heavy selling, too, in what looks like a move related to the downdraft in other markets that could be seen as something of a ‘risk-off’ trade if this is stale long liquidation,” said Tim Evans at Citi Futures Perspective. “There may also be a straight technical aspect to the decline, with the bears simply looking to reassert control over the direction of prices. What we don’t see is any bearish shift in the temperature outlook, with the latest forecast only fractionally warmer in the six- to 10-day period and more noticeably cooler in the 11- to 15-day timeframe. If the market survives this downside test, we could see prices recover at least some of the losses…”

Not all agree on a cooler 11- to 15-day outlook. Commodity Weather Group in its 11- to 15-day outlook shows above-normal temperatures for the entire country east of a line from Wisconsin to South Texas. The country’s midsection is forecast to have normal temperatures, and the West Coast is expected to be below normal.

“Timing of the models’ development of Greenland ridging was slower [Tuesday], especially on the European ensembles. This idea of a delayed timing seems reasonable given various analog (including last year) suggestions that the cold shifts into the Midwest, South and East by either the third or fourth week of November,” said Matt Rogers, president of the firm. “Last year’s timing was also slower-than-expected as the models typically tend to rush changes too quickly (especially the colder American models). Otherwise, while the six- to 15-day should see some variability, it is still a warm-dominated situation in the East with mostly cool-to-cold weather in the West. The American ensembles deliver a stronger cold push to the Plains by Nov. 15-17 (just beyond 11-15).”

Analysts see a vulnerable market. “We still see significant downside risk capable of carrying nearby futures to as low as the $3.45-3.50 zone. We feel that the shift toward milder temperature expectations during the past weekend has not been fully discounted and that the market will still need to price in an associated elevation in storage through the first half of this new month,” said Jim Ritterbusch of Ritterbusch and Associates. “Thursday’s [gas storage] report will likely show a supply build just slightly above last year’s 67 Bcf increase. But more importantly, a further expansion of at least 30-35 Bcf in the supply surplus against average levels would appear likely. This surplus will be approaching 200 Bcf with this week’s report, a sizable excess with which to address even the coldest of winter requirements.”

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