January natural gas futures rose in modest trading Wednesday as traders still saw the market in control of the weather bulls and expressed reluctance to sell until weather forecasts turned more moderate. At the close January futures were up 10.6 cents to $5.821 and February added 11.2 cents to $5.884. February crude oil gained $2.27 to $76.67/bbl.
“It’s been an interesting day of fund rolling long positions from January to February and also outright purchases of February,” said Eric Bentley, senior trader at Viking Energy in New York. He added that for the moment the weather-driven bull move was intact, and he didn’t see traders expressing much interest in selling in this environment.
The United States Natural Gas Fund (UNG) began rolling long January futures position to long February on Dec. 15 and completed the roll on Dec. 18, according to the posting on its website.
Others were also content to let the current uptrend play itself out. “I think you have to ride the trend as long as it is going higher,” said a Chicago banker. “You have to believe that as soon as the weather forecasts change and show more moderate conditions, prices will come back down. It started out as a combination of weather and technical trends, and it just makes a lot of sense to ride it higher.
“Where the market tops out is silly to try and guess, but as soon as we see moderation in the six- to 10-day forecast, I think prices will ease a little, and they have a good chance of making a 50% retracement of this move with little hesitation at all.” Figures show that a 50% retracement of the advance of the spot futures contract from mid-November would lower prices to just over $5.
The banker added that if an end-user in an unhedged position were to come to him, he would not advise implementing any price protection measures “unless they utilized something with some flexibility such as call options or call spreads. If they felt they absolutely needed some protection, I wouldn’t want to give up the downside with spot prices approaching $6. We have clients seeking to exit long hedges established at both higher and lower levels.”
The release of inventory data Thursday by the Energy Information Administration (EIA) may prompt a few traders to exit long or short positions, hedges or otherwise. For the last two weeks estimates of the inventory figures have been way off the mark with last week’s 207 Bcf withdrawal catching a number of analysts flat-footed with estimates in the mid 180s Bcf area. For the week ended Dec. 18 both the Reuters and Dow Jones polls showed an estimated 173 Bcf withdrawal, and JP Morgan projected a 177 Bcf pull. Last year 144 Bcf was withdrawn and the five-year average stands at 128 Bcf. The report is scheduled for release at 10:30 a.m. EDT.
Students of the economy were pleased by EIA’s release of petroleum inventory figures Wednesday. Expectations had been that crude supplies fell by 1.6 million bbl for the week ended Dec. 18 and distillate stocks dropped 2 million bbl, according to the median estimates of 16 analysts surveyed by Bloomberg. The actual figures came in at a 4.84 million-bbl decline in crude oil and a draw of 3.027 million bbl of distillates, thus indicating stronger than anticipated energy demand and implicitly a stronger economy.
Prior to the open of trading Tom Saal of Hencorp in Miami, in his work with Market Profile, identified two lower value areas determined by the trading of January futures. His first value area was $5.675-5.533 and the second was $5.514-5.449. Value areas often act as near-term price objectives and often are tested soon, if not the next day.
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