With a parade of storms coming off the coast of Africa at a frenetic pace, one theory is that natural gas futures traders — much like they did the previous Friday — took to covering their short positions ahead of the weekend to limit their risk (see Daily GPI, Sept. 7). However, another leading idea is that futures have hit a seasonal bottom and are ready to explore higher prices.
The October contract reached a high of $3.939 Friday before closing out the session at $3.883, up 11.5 cents from Thursday’s close but 5.6 cents off of the previous week’s finish. Ironically enough, Friday’s high matched the previous week’s finish to the tenth of a cent.
A Washington, DC-based broker said while short-covering to protect against storm development over the weekend could play a part, he tends to subscribe to the seasonal bottom viewpoint. “I think the impact of storms is getting more and more discounted by market participants due to the migration to onshore gas supply,” he told NGI. “Unless you’re telling me that a hurricane is going to hit Pittsburgh, then I’m not all that impressed. The Gulf of Mexico is not what it once was with regards to U.S. supply. The impact of the shales on gas supply over the last few years has marginalized Gulf supply.”
While acknowledging that Gulf supply was certainly still important, the broker said every year around this time the market starts to get a little more bullish. “Some of the technical indicators started to go positive last week and we managed to hold above $3.700, despite barreling into shoulder season with a comfortable amount of gas in storage. I’m marginally bullish on things. If I was a natural gas marketer who was buying for industrials, I would recommend layering in a strip here. Definitely meet some requirements, but not everything.”
Analysts see further price declines limited in the immediate term as technical support at $3.700 holds. “Assertive technical selling is limited following the market’s ability to validate a recent shelf of support at about the $3.700 level in [Thursday’s] trade,” said Jim Ritterbusch of Ritterbusch and Associates. “But, short of a major hurricane event into the GOM [Gulf of Mexico], a $4 price handle would appear out of reach just as the $3.50 level also appears stretched given a continuance of the past summer’s declining supply surplus.”
Although the release of weekly inventory figures dominated trading Thursday, those focusing on the economy got some good news with the release of initial jobless claims by the Labor Department. Expectations were that the weekly figures would show claims of 470,000 but the figure came in significantly lower at 451,000. The week prior the figure had been 478,000.
Taking a snapshot of the tropics, forecasters at AccuWeather.com are monitoring two systems. Tropical Storm Igor was seen as strengthening as it approached open Atlantic waters and was expected to reach hurricane status over the next few days.
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