January natural gas futures prices shot higher on Wednesday and depending on who you talk to, the move was due to: winter storms coming to the Northeast; Tropical Storm Olga (later downgraded to a tropical depression) curving its path towards the Gulf of Mexico; skyrocketing petroleum prices; or the failure of gas to get below $7. Some market experts cited a mixture of the three for the prompt month contract’s 32.3-cent jump on the day to finish at $7.408.
The January contract settled near the high of the day’s range — $7.200 to $7.415 — leading some to believe that the bulls are not done yet. While the gains in natural gas were impressive, crude futures once again stole the show, as January crude vaulted $4.37 higher on the day to close at $94.39/bbl.
“I think what we saw Wednesday was the results of an accident waiting to happen. Natural gas futures kept flirting with a break below that $7 support level, but each time we got close we would rally,” said Steve Blair, a broker with Rafferty Technical Research in New York. “On Wednesday we walked in to an actual winter weather forecast for the Northeast, so I think that, along with our inability to get under $7, was enough to push things higher. The Northeast is expected to get a winter storm on Thursday, followed by a more significant storm on Saturday night and Sunday. I think that one-two punch helped get the natural gas….and the petroleum markets headed higher.”
Blair pointed out that $7 turned out to be a stumbling block for traders, especially since it is almost the middle of December. “It was obvious that the market was hesitant to take things below $7 because people were waiting for the first real winter weather event in the Northeast,” he said. “Now that we have the forecast that the event is going to happen, I think that got the market going higher Wednesday, which was increased by some short-covering coming in. I think this market is going to remain pretty strong here. We had a minor resistance level at $7.400. Our next level is up in the $7.60s. If nothing changes as far as the near-term forecasts are concerned, I could see this market traveling another 20-30 cents to the upside.”
MDA EarthSat in its early morning forecast for the next few days shows much below normal temperatures for a vast section of the country west of a line from Green Bay, WI, to Houston, TX. In the three- to five-day period the area of much below normal temperatures expands to encompass an even greater portion of the U.S. north and west of a broad arc extending from New Orleans, LA, to Washington, DC.
As for concerns that Olga could develop into a system that would threaten Gulf of Mexico oil and gas interests, Blair said he wasn’t buying it. “No one is saying this thing is going to get into the Gulf. Even if it did, the wind pattern would tear it apart. If anyone is hanging their hat on Olga, I think that’s silly,” he said. “Now getting a storm in December is a strange event, so there might be a psychological effect on the markets.”
Olga, which was classified as a subtropical storm earlier in the week, was upgraded to a tropical storm earlier Wednesday before being downgraded to a tropical depression.
Some market watchers see the petroleum upswing and strengthening of Olga as supportive factors, which are jointly pushing natural gas futures higher. “The natural gas market has joined the upturn in petroleum, with some help from the performance of Tropical Storm Olga, which may have a chance to strengthen again over the relatively warm waters of the northwestern Caribbean before it hooks back toward Florida,” said Tim Evans, an analyst with Citigroup in New York. “It remains only a very low-grade threat to production in the northern Gulf of Mexico, but is providing some psychological support for prices nonetheless, as is the rally in petroleum. We see a further rally in price as possible, with our storage forecast suggesting more robust net withdrawals than we think the market is more broadly anticipating.”
Looking at the Energy Information Administration (EIA) storage report for the week ended Dec. 7, early estimates show the first triple-digit withdrawal of the season. Evans is calling for a withdrawal of 130 Bcf, which is also the median of a Bloomberg survey of 13 analysts. The number to be revealed Thursday morning will be compared to last year’s 146 Bcf pull and the five-year average withdrawal of 132 Bcf.
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