The natural gas futures market kept up its unpredictable behavior on Friday by doing the opposite of what most within the industry had been expecting. While traders and analysts largely thought the December contract was working down to test the lower end of the recent range at $7.500, it ended up doing the complete opposite by climbing to finish out the week at $8.001, up 30.1 cents from Thursday and 10.4 cents higher than the previous Friday’s close.

As the temperatures in eastern metropolises became more seasonal late in the week, some traders were concerned that the cold might stick around for a bit. In addition, one broker noted that prices will also be under directional pressure as increased gas supply from the shales in Texas will likely square off with decreased liquefied natural gas (LNG) imports this winter.

“There are reports out there that some forecaster has been out with a colder near-term forecast, so that could have been some of what we saw Friday,” said a Washington, DC-based trader. “It had looked like we were going to run down to the bottom of the range but instead we turned and went in the other direction. Our models gave us a sell signal Thursday night and we were smacked in the face Friday morning. Momentum is basically neutral at this point with both the bulls and bears unable to push it around that much.

“Of interest is the idea that the $7.500 to $8.500 range might be contracting. We had a $7.650 overnight low before rebounding, so maybe this range is narrowing, which would indicate that the market is coming to some sort of decision. A narrowing of a range technically tells us that the market is starting to shake things out a little bit. The bulls can’t push it quite as high and the bears can’t move it quite as low, which will bring us to a decision point eventually. Weather will basically call the shots here over the next few weeks.”

The broker noted that there are some interesting supply concerns coming into focus that could give the bulls and the bears some fresh ammo for their respective cases. “On production, we are hearing that the Barnett shale formation down outside of Fort Worth, TX has been pumping out a ton of gas,” he said. “A lot of the companies operating down there like EOG Resources and Chesapeake have really been producing a lot of gas. The word is it is somewhere in the neighborhood of 3 Bcf/d of production, which is a ton of gas and is above most industry expectations.

“While that supports the bearish case, it is balanced a bit by the decline in LNG imports. Relatively speaking, we had a high level of LNG imports this past summer, but that has now whittled away because LNG flows to the highest-priced market. It just shows that this market is moving closer to a global price. It would not surprise me that within three to four years we are just talking about a global price for natural gas. All this talk of LNG versus natural gas will fade because it is all gas. There will be slight price variations from basis point to basis point, but the days of only following the microcosm of the United States, Canada and Mexico are soon to be over. We all are going to have to start understanding what is going on with the weather in Japan. It happened to the oil guys and it will happen to the natural gas folks too…sooner than most people think.”

Looking at the weather picture, things could get a little frosty before the next warming period. “Weather forecasts show post-Thanksgiving it is supposed to be pretty darn cold,” said a Denver trader. He said temperatures were forecast to fall as much as 15 to 20 degrees below normal, and “that’s one thing we are keeping an eye on.” He added that he didn’t think that such a forecast had been fully priced into the market and noted that the cold was predicted to hit the center of the country, Chicago and points south, but not reach the East Coast.

AccuWeather also predicts cold weather in its 11- to 15-day forecast but moves the cold farther east. It shows below-normal temperatures east of a line extending from eastern Montana to central Oklahoma to the Florida-Georgia border. West of that line temperatures are expected to be normal, and west of a sinuous line from Oregon to southwest Texas is forecast to be above normal.

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