The cash market on average dropped a dime Tuesday with Northeast points and the Rocky Mountains taking the biggest hits. Volatile weather prompted New England losses, but the Great Lakes and Texas points were weak as well. At the close of futures trading April had fallen 1.8 cents to settle at $2.208 after having ventured as low as $2.176. May lost 2.5 cents to $2.294. May crude oil rose 30 cents to $107.33/bbl.
“Gas for today [Tuesday] was driven higher by colder weather, but [Wednesday] looks warmer, and I think that is what is driving the prices lower. The prices are basically a reflection of the weather,” said an eastern marketer.
The marketer noted that Wednesday would be the last day of his bid-week activity and said “people are firming up supplies less and less because the basis is so low. The LDCs are losing capacities and will probably go to the cash market if they need any gas,” he said.
Forecaster Wunderground.com reported that Tuesday’s high in Boston of 48 would rise to 55 Wednesday, five degrees higher than normal. The National Weather Service in southeast Massachusetts reported that blustery conditions with below-normal temperatures would prevail through Tuesday evening. After another cold night Tuesday “low pressure moves across New England late Wednesday into Thursday bringing a chance of showers. Cool and dry weather follows Friday…with another [system] likely to move south of the region during the weekend.”
Next-day gas on Algonquin Citygates was quoted nearly 30 cents lower and parcels into Iroquois Waddington dropped more than a quarter. Wednesday gas on Tennessee Zone 6 200 L fell about 35 cents.
Across the Midwest prices weakened, but traders were still favoring index gas purchases over the more risky spot market for April. “We are buying about 57,000 MMBtu [on index] plus another 21,000 MMBtu fixed price, so we are still favoring the index,” said a Great Lakes marketer. “For March we bought 95,000 MMBtu on index and 25,000 on the spot market,” he said.
Gas for delivery Wednesday to the Chicago Citygates dropped 11 cents, and MichCon and Consumers fell 8 cents.
Texas points lost ground as well. El Paso Permian fell about 10 cents, and Texas Eastern S TX dropped 7 cents. Deliveries to Katy skidded 6 cents.
Rocky Mountain points suffered double-digit losses with gas from the Opal plant tailgate getting pummeled for about 15 cents.
Pervasive bearishness on futures’ ability to hold critical support was reason enough for one trader to take a contrarian view. “Everybody that is on board with buying boatloads of put options and thinking ‘we are at $2.20 and we are this close to putting up a $1 handle’ is just the reason that we won’t,” said a California trader.
He said with Wednesday being the expiration of the April contract and the storage report not due out until Thursday, “it is unlikely to trade below $2 Wednesday. Traders will have to wait for the nine-cent spread [spot contract under next month] to come back into the market.”
Futures may not make it below $2 immediately, but some see $2.20 support as highly vulnerable. “The fact that this market has gathered downside momentum this week despite some moderation in the short-term temperature views is sending off bearish vibes suggestive of a violation of $2.20 support, possibly as early as today’s [Tuesday’s] trade,” said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients.
Ritterbusch is expecting a softening of the price curve. “This expected weakening will continue to contrast with support into the distant contracts that will be driven by weather uncertainties and the likelihood that declining gas rig counts will begin to have some bite later in the year,” he said. “Meanwhile, this week’s price down-move is also suggesting a market in dire need of some voluntary production restraint, a development that has failed to materialize this month.”
Technical analysts are pondering whether the natural gas market is poised to take part in a broad-based energy rally. “With a possible double bottom in place and substantial RSI [relative strength index] divergence visible across multiple time periods we think the answer is yes, despite the fundamentals,” said Brian LaRose, an analyst with United-ICAP.
“That said, we are very cautious bulls and will be watching $2.415-2.448 and $2.583-2.600 intently. Fail to get above these two hurdles and the case for a larger degree seasonal advance will be in trouble. Clear these two bands of resistance and we will have confirmation natgas is in fact headed higher. Our initial upside targets in this case: the A=C objectives from $2.231; ‘a’ = ‘c’ cuts at $2.817; 1.618 ‘a’ = ‘c’ cuts at $3.196. An average 50% increase in spot value targets $3.347,” he said in a long-term report. LaRose highly recommends a protective stop at $2.204.
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