Hibernation

With winter weather conditions still in mostly hibernation for a large swath of the United States, and natural gas prices plummeting as a result, the question within the energy industry remains how long can the unseasonably warm conditions last? Unfortunately, the answer is: it depends on whom you ask.

The bull trend in natural gas futures suffered what some analysts and brokers believe was a fatal blow Thursday as prices spiraled lower on yet another bearish storage report (156 Bcf withdrawal) by the Energy Information Administration. The prompt contract dropped 39 cents in five minutes following the 10:30 a.m. EST inventory update. By 11 a.m. EST, prices had bottomed out at $5.60, down 62 cents from the market’s pre-EIA level. A modest rebound was seen in the afternoon, and the February contract finished the session at $5.834, down 31.6 cents on the day.

With few fresh fundamental factors on which to trade, natural gas futures prices chopped lower Tuesday in agreement with increasingly bearish technical factors. The May contract was hardest hit by the selling, dipping 6.8 cents to close at $5.645. After two days of quiet trading, activity picked up on Tuesday and added credence to the down move. Estimated volume was 67,340.

In November and December, consultants at Wakefield, MA-based Energy Security Analysis Inc. said they believe average daily spot prices at New York City (Transco Zone 6) will spike to $4.99 and $5.70, respectively. However, by January weaker market fundamentals in the Northeast this winter should chop prices and basis spreads down considerably compared to recent winters.

In November and December, consultants at Wakefield, MA-based Energy Security Analysis Inc. said they believe average daily spot prices at New York City (Transco Zone 6) will spike to $4.99 and $5.70, respectively. However, by January weaker market fundamentals in the Northeast this winter should chop prices and basis spreads down considerably compared to recent winters.

It was a popular belief heading into last weekend that the only thing that could subvert a gap-higher open in the natural gas pit on Monday was a substantial revision in the short- and intermediate-term weather forecasts. The potential last week of Old Man Winter making one last appearance across much of the Plains, Midwest and Northeast was too scintillating for traders not to buy into it — even though the cold weather was still a week or more away.

Following the release of some of the most price-constructive medium range weather forecasts thus far this winter, natural gas futures shuffled higher Thursday. Continued short-covering pressure was enough to promote prices to new six-week highs for the third day in a row. However, the buying was done in an orderly manner, and because it was almost evenly matched by local and commercial selling, the day’s gains were limited. The March contract settled at $2.425, up 4 cents for the session. By virtue of yesterday’s 118,144 figure, estimated volume has easily eclipsed the 100,000 mark each day this week.

Moderating weather, low storage withdrawals and price-negative technicals were more than natural gas traders could handle last week as they increased their short positions and pressured prices to new lows. The February contract was the hardest hit by the selling, shedding 50 cents last week to carve out a new life-of-contract low at $2.25. Even a slim 0.7-cent gain to $2.275 on Friday, did little to dissuade the bears who look for more weakness this week.

In reaction to moderating weather forecasts for this week and amid some very negative technical factors, natural gas futures tumbled lower Friday, as traders liquidated positions ahead of the weekend. The November contract was the hardest hit by the selling pressure, slipping 18.7 cents to close at $2.227. The winter strip was not far behind, giving back 14.5 cents to finish at $2.657.