September natural gas futures shed slightly less than half of Thursday’s gains Friday as traders mulled not only the fact that natural gas failed to advance with crude oil, but also soft economic data. September futures slipped 9 cents to $3.653 and October retreated 7.9 cents to $3.909. September crude oil added a stout $2.51 to $69.45/bbl, and the Dow Jones Industrial Average rose 17 points to 9,171.
Traders see a weak outlook for natural gas. “Unlike crude oil, natural gas is not following through its big up day Thursday,” said a Washington, DC-based broker. “Natural gas is not at all the same. It had the big down day Wednesday, the big up day Thursday, and then down again Friday, and it’s a much more choppy-to-bearish outlook.”
The broker said it was important for industrial demand to revive. “When you look at where we are in terms of things like the purchasing managers indices and durable goods and factors that measure industrial production for which we are going to need power, and when those become more bullish, I think natural gas gets off the mat and moves higher.”
The 8:30 a.m. EDT Friday release of second quarter gross domestic product (GDP) data by the U.S. Commerce Department was not exactly capable of lifting natural gas prices off the mat. GDP is the broadest measure of economic activity and first quarter GDP initially came in at minus 5.5%, but that figure was revised Friday to a more dismal minus 6.4%. For the second quarter, analysts were looking for a significant deceleration in the economic contraction. Expectations were that the economy slowed by only minus 0.7%, but the actual second quarter figure came in at minus 1%.
“Technically you have to peg support in the $3.20s to $3.30s. Those are the numbers that matter and anything between here and there is commentary even though it is 40 cents’ [difference],” the broker said.
Friday was a classic case of natural gas being unable to capitalize on the strength in petroleum and equity markets. “[A] problem that gas prices have had recently has been their inability to rise (regularly) on the same economic factors that have inspired funds trading oil futures. It has become something akin to a mantra in oil, since March, that stronger equities prices suggest a recovering economy, which in turn should lead to heavier energy use,” said Peter Beutel, president of Cameron Hanover. Beutel pointed out that crude oil prices typically rose with equity markets, but not natural gas.
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