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No Follow-Through from Supportive Storage Report; November Eases
November natural gas inched lower Friday as buying momentum from Thursday faded and traders continued to focus on a market burdened by a host of negative supply-demand factors. They suggested that prices could work nearly 40 cents lower from present levels. At the close November had drifted 0.1 cent lower to $3.629 and December had fallen 0.8 cent to $3.826. December crude oil gained $1.33 to $87.40/bbl.
Traders were circumspect about whether they expect technical support at current levels to hold. “I don’t know. There is an awful lot of gas around, and people think this market could go a lot lower,” said a New York floor trader. “They are looking for prices to trade in the $3.25 range rather than where we are now.
“There is just so much gas around, and we have more injections to do. It seems to me the fundamentals are bearish, and I don’t know that too many people are holding length that would trigger stops, but I certainly think the market will be weighed down by fundamentals. I don’t think there is any weather that will move the market. I think that $3.71, the high from Thursday, is where resistance is.”
Other traders see a relentless slide lower. “We broke through $3.80 and that had held for a while, and the market is clearly happy living beneath there and it seems everything continues to deteriorate. Technically we are filling a gap from October 2010 that ranged from $3.656 to $3.399, and that is probably where we are attempting to grind lower,” said a Washington, DC-based broker. “Now that we have broken through $3.80, that is the next major objective.
“You can’t argue with this market if you are a school district or an LDC [local distribution company] and a gas buyer; this has been your market. Look out on the curve. There is a lot of carry and nothing out there that makes you fear what December is going to do. Twenty cents higher than November? I don’t think you will find too many people that will take the ‘I think December is going to go 20 cents higher from $3.84’ bet. People are thinking December will erode right down to$3.64 just like November. Given the fundamentals I don’t see how you can think otherwise.”
Analysts see little in the way of market support from the weather forecasts. “Without supportive assistance from the temperature factor, the market is being forced to drift lower in order to attract fresh buying or induce new short-covering from the hedge funds,” said Jim Ritterbusch of Ritterbusch and Associates after the close. “We still look for short-covering from the large speculators to support values above the $3.45 area within this anticipatory phase of the heavy usage cycle. At the same time, we still see staunch resistance at about the $3.75 area as a result of a record production pace that is yet to be reined in by an unexpectedly low pricing environment.”
The Baker Hughes gas-directed rig count indicated a decline of nine to 927 for the week ending Oct. 21, the first drop in six weeks. The number of horizontal rigs fell by 11 after achieving a record high the prior week. “All in all, we still see a rangebound trade within the parameters of the past six sessions through the balance of this month,” Ritterbusch said.
Whether it could drive the market higher remains to be seen, but heating load may pick up this week as forecasts call for below-normal temperatures across a broad section of the Southeast and Mississippi Valley. In its six- to 10-day forecast MDA EarthSat showed an area of below-normal temperatures south and east of a broad arc extending from North Carolina to North Dakota to West Texas.
“The forecast is the same to slightly warmer compared to [Thursday]. The core of the strongest cold will arrive over the Central U.S. early, though with the surface high of mixed origins, there is still some question to the exact intensity of the chill,” the forecaster said on Friday. “Weak offshore trends should allow California to stay on the warmer side of normal, though extremes are unlikely given the lack of strong ridging. The Northeast will remain largely under an unsettled pattern with westerly flow, which should keep the strongest cold from reaching the region.”
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