Unfazed by storage data showing stocks decreased by 1 Bcf during the week ending Nov. 21, the natural gas futures market shifted lower Wednesday, as a local trader-led rally was crushed by another round of bearish weather forecasts. The January contract stair-stepped lower in two distinct selling surges. When the dust had settled and the orders were counted at Nymex, the prompt month had slipped 12.5 cents to close at $4.925 on its first day in the limelight.
According to the Energy Information Administration, gas in underground storage stood at 3,154 Bcf as of Nov. 21, down 1 Bcf from the week prior. Although the slim withdrawal fell notably short of the 32 Bcf takeaway experienced in the previous week, it was in line with consensus estimates looking for either a modest injection or withdrawal. It was bearish versus the year-ago and five-year average withdrawals of 49 and 40 Bcf respectively.
Storage is now 107 Bcf more than year-ago levels and 147 Bcf above the five-year average.
Leading into the report, natural gas futures had moved higher Wednesday morning on a steady diet of local buying. “They were anticipating a bullish number,” said Ed Kennedy of Commercial Brokerage in Miami.
As it turns out, the 1 Bcf draw was not constructive enough and, sensing a wave of selling, locals liquidated their longs. “There are more than a few [locals] that are a little bit lighter in the wallet as a result,” Kennedy continued. The move lower was nearly frictionless, as many buyers had pulled their buy-stops off the market ahead of the storage report.
Referred to by some traders as the 10:28 rule because it occurs just two minutes before the normal 10:30 a.m. EST data release, the practice by traders of pulling their buy- and sell-stop orders off the market creates a virtual vacuum both above and below the prevailing price level. When the storage number is released, the market is free to move in either direction in an exaggerated manner. On Wednesday, that direction was down and the January futures contract shed a cool 12 cents in five minutes following the storage report.
After briefly stabilizing, the futures market made another leg lower in the last hour of trading as traders reacted to the latest round of bearish weather forecasts. Though snow showers were forecast for parts of the Appalachian Mountains over the weekend, the weather outlook is not overly constructive, with normal and above normal temperatures extending well into the first week of December. According to the latest six- to 10-day forecast released Wednesday by the National Weather Service, above normal mercury readings are predicted for a large swath of the country extending from the Rocky Mountains east at least through Dec. 9.
In daily technicals, January has immediate support at Wednesday’s $4.85 low, which is a spot-on match with the low notched on Nov. 20. To the upside, the market will see its usual congestion near the $5.00 level, with more selling at the top of the recent spike high of $5.20.
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