February natural gas closed modestly higher Tuesday as prices generally ignored soaring oil and equity markets and posted an ominous new low during the session. Traders suggested that further price declines were likely. At the close February had risen 0.4 cent to $2.993 and March had inched higher 0.6 cent to $3.022. February crude oil bounded higher by $4.13 to $102.96/bbl.

Despite closing slightly higher the February contract made a new low of $2.936 and “I have always viewed new contract highs and lows as being significant in that new highs means higher prices ahead and new lows, lower prices,” said an Oklahoma-based analyst.

The question with natural gas seems “‘How low can it go?”. “We haven’t had much weather yet and there doesn’t seem to be much weather activity.” The analyst did admit when compared to the trading gymnastics of crude oil “the natural gas market may be more predictable than crude oil. It’s not so susceptible to world events. It’s probably a truer supply-demand market than crude oil is. Crude is so emotional, and you have to watch world headlines all the time and what is going on in the world markets.

“People generally don’t want to trade the short side of a market, they want to buy something and watch it go up.”

According to government figures, directional traders at IntercontinentalExchange (ICE) favored the long side of the market and traders at the New York Mercantile Exchange pursued short positions. On balance, however, there was a slight bias to the short side of the market. The Commodity Futures Trading Commission in its Commitments of Traders report for Dec. 27 reported that managed money at ICE increased long futures and options (2,500 MMBtu per contract) by 34,936 to 457,556 and short holdings rose by 4,118 to 268,544. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) fell by 1,506 to 144,447 and short positions rose by 6,722 to 268,716.

When adjusted for contract size long futures and options at both exchanges increased by 7,228 and short holdings rose 7,751. For the four trading days ended Dec. 27 February futures fell 1.6 cents to $3.112.

Technical analysts are looking for an additional retreat of as much as 40 cents. “Natgas is oversold in both momentum and sentiment. However, on a decisive break below the $3.010-2.970 zone our next step down still targets to the $2.770-2.600 area,” said Walter Zimmermann, vice president at United-ICAP.

Other analysts see market support derived only from occasional short-covering and a reaction to oversold conditions rather than any fundamental shift in an overburdened supply-demand balance.

“As we start the new year, we have a February natural gas contract as our front month, and it has to make it through its next few underground storage reports without missing its inventory estimates by large amounts,” said Peter Beutel, president of Connecticut-based Cameron Hanover. “Warmer-than-normal temperature readings over the past weekend will make it difficult for this week’s figures to come in as needed, and the buyers are likely to be supported only by oversold pressures again. There is plenty of long-range support under $3.00, but we may also have too many recent buyers just over $3.00 who are now looking to liquidate those speculative purchases.”

Longer term, weather outlooks show a possibility of cold air working its way into the interior U.S., but long-lasting cold isn’t on the radar. “This [11- 15-day] period features considerably more variability and colder potential than either Friday’s projection or [Monday’s] update,” said forecaster MDA Information Systems. “Instead of taking on a La Nina/-PNA [Pacific North American pattern] look early in the period, it appears that another round of belows [normal temperatures] may be in store for much of the South during the first few days, which could also reach into the lower Midwest or Mid-Atlantic briefly. This should still be a fairly transient cold, however, given the ongoing lack of blocking to hold it in place. The stronger cold will likely show up over Western Canada as the period progresses, with downstream warmth building from Texas to the Northeast.”

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