November natural gas rose Monday as traders saw little in the way of fundamental changes and looked for the market to trade lower by midweek. After what was deemed a round of short-covering November had gained 6 cents to $3.541 and December was up by 1.6 cents to $3.836. November crude oil vaulted $2.43 to $85.41/bbl.
“All the other commodities have been screaming higher, and natural gas can’t get out of its own way. I think Monday was just a little bit of short-covering,” said a New York floor trader.
“I look for one more push to the downside over the next few days so around Thursday we’ll probably test down to $3.38 to $3.40. I don’t look for the market to move much higher, maybe another 5 to 7 cents to the upside. Monday was just a reaction to the crude and products moving higher.”
Technical analysts have lower prices in their sights. “Any further downside targets the $3.200-2.950 area,” said Walter Zimmermann, vice president of United-ICAP. He targets near-term price objectives at $3.470, 3.200, and 2.955.
The bearish case “targets the 2.540 area,” he said in a weekly report to clients.
For the five trading days ended Oct. 4 directional traders reduced short holdings and made only nominal additions to long positions. According to the Commodity Futures Trading Commission, managed money added to long futures and options and contracted short positions. The Commitments of Traders Report showed that at the IntercontinentalExchange long futures and options (2,500 MMBtu per contract) rose by 5,493 to 288,564, but short positions fell by 49,970 to 137,8914. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) fell by a minuscule 130 contracts to 117,564 and short contracts dropped by 9,718 to 234,552.
When adjusted for contract size long positions at both exchanges rose by 1,243, and short holdings plunged 22,210. For the five trading days ended October 4, November futures fell 23.7 cents to $3.638.
Analysts see a plethora of bearish factors at work on the natural gas market and suggest to physical market participants to retain short hedges. “There is some colder weather over the next week, which may help spot heating demand, but this has had little impact on futures prices,” said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.
“The EIA [Energy Information Administration] showed a [storage] build of 97 Bcf, which was inline with expectations, but the market did slide lower after Thursday’s report. Natural gas rigs rose again in the latest Baker Hughes rig report, but we would anticipate a slowdown with the lower prices. The lack of any tropical weather is also weighing on prices. We did cover our short puts after prices traded below $3.60.”
DeVooght advises producers and other physical market longs to remain hedged. For the November-March period he counsels holding on to an option strip consisting of long $4.75 put options offset by the sale of $7.00 calls for a 16- to 20-cent debit.
Bulls are going to have to look hard to find any morsels in near-term weather forecasts. In its six- to 10-day outlook, MDA EarthSat predicts a broad ridge of above-normal temperatures stretching from the upper Great Lakes, Ohio Valley and New England as far south as Louisiana, Texas and Arizona.
“Changes [to the forecast] were largely to the colder side since late last week, but the pattern still carries more ‘aboves’ than ‘belows.’ These cooler changes were primarily a result of an increased amount of variability within the period, both early on in the wake of low pressure exiting the Northeast and again late as a ridge tries to build out West (inducing a downstream trough). These changes are supported by most of the models, as well as the expected increase in the PNA [Pacific North American pattern] and decrease in the AO [Arctic Oscillation]. These changes and still some ongoing risks have decreased confidence in this period today,” the forecaster said in its morning report.
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