January natural gas declined Wednesday largely in concert with the petroleum complex and as traders braced for a government storage report with widely varying estimates but nonetheless anticipated to show a decline significantly less than historical averages. At the close January had slid 6.6 cents to $3.421 and February had given up 6.5 cents to $3.458. January crude oil dropped 79 cents to $100.49/bbl.
“Trading was limited to a small range, and everything kind of moved in tandem. Crude and products were lower as well as natural gas,” said a New York floor trader.
The trader characterized the day’s 6.6 cent-loss as “a methodical grind lower. I don’t see much change going into the end of the year, and since there is a lot of speculative dominance in the market, a lot of traders will closing their books.”
Unless something major develops, the trader didn’t foresee any major moves in the market. Weather for the moment appears relatively benign in the East. “As far as the Northeast goes we are just going to start to see some colder weather, which is really just a blip, and then it warms up again into the 50s.”
The trader saw the market “stuck in the middle of nowhere in the $3.40s. I think you will get a true move lower if the market gets under $3.36 and over the $3.53 to $3.57 area. Unless we see something extraordinary, I think the market will work lower to test the $3.36 area. If the market has no [downward] steam against that level, we’ll drift higher and test the $3.50s over the next week or so, but some traders are off the table going into the New Year.”
Whether Thursday’s storage report falls into the “extraordinary” category will be determined shortly, but Tim Evans of Citi Futures Perspective is anticipating a 22 Bcf withdrawal in Thursday’s Energy Information Administration (EIA) inventory report and a 87 Bcf pull for the following week. “With storage as forecast, the 261 Bcf year-on-five-year average surplus from Nov. 25 would expand to 368 Bcf as of Dec. 16, before narrowing slightly in the week ending Dec. 23. Although further changes in the temperature outlook are a risk to our forecast, we should also note that we have also seen other forecasts for storage to be little changed for the week ended Dec. 2, a more bearish outcome that would also translate into weaker storage data going forward. On the other hand, we would also note that the lower the expectations going into Thursday morning’s DOE storage report, the greater the chance for a bullish surprise.”
Estimates of the 10:30 a.m. EST EIA report show a wide variation. A Reuters survey of 26 analysts showed an average withdrawal of 12 Bcf and a range from a 42 Bcf decline to a 3 Bcf build. IAF Advisors in Houston is looking for a pull of 3 Bcf and industry consultant Bentek Energy utilizing its North American flow model predicts a pull of 1 Bcf. Last year 79 Bcf were withdrawn and the five-year average pace stands at 66 Bcf.
In a report Bentek cautioned that it saw “most of the risk to the downside this week. A stronger-than-forecast draw in the East is highly likely as the largest storage facilities in the region reported large draws for the week. Dominion System was the only exception, which had no change week-on-week. The Thanksgiving holiday provided some support for a small draw or even a national injection as demand declines during the four-day holiday added uncertainty for this week’s forecast.”
Analysts saw Tuesday’s modest 2.6-cent gain posted by the January contract as traders covering short positions ahead of a weather change. Peter Beutel, publisher of Daily Oil Hedger, sees temperatures dropping by 15 degrees with a cold incursion beginning in the northern Plains and migrating south and east. “[T]raders were covering shorts [Tuesday] because temperatures will drop over the next few days while readings at the forecast horizons are seen as dipping as we get deeper into the middle of the month.”
AccuWeather.com forecasts that the high in Chicago will reach 26 on Friday, significantly lower than its normal high for this time of year of 38. In a week, however, highs are expected to be back up to 40.
“Technically, prices are oversold longer term, with the weekly slow stochastic [indicators] coming in at 12.43% and 10.46% while the monthly is at 6.52% and 7.00%. They are the ones preventing the bears from making any genuine progress on the downside. Every time prices sell off, short-covering pushes them back up again. They are acting as brakes,” Beutel said in a morning note to clients.
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