Last week’s price tumble has analysts and traders rethinking the bullish case for longer term natural gas prices. According to one top trader, should prices retreat a little more it will be time to begin purchases.

“Last week was definitely not a longer term top. I’m still calling myself a long-term natural gas bull. I don’t think the highs are in place, although there was a little too much storm premium recently pumped into the pricing structure,” said Jim Ritterbusch of Ritterbusch and Associates. “There have been two big storms roll through, no permanent damage done to production facilities, and that just makes the supply-demand balance one of smaller [storage] injections than they might otherwise be.”

“Injections were lower by 15 to 20 Bcf and stocks are still at high levels and that’s a nice cushion when you are taking only 15 to 20 Bcf out in a week’s time,” Ritterbusch continued. “The bottom line is that there has been a couple of periods where storm premium has been added to the market, then it’s been taken back out and the market will probably work a bit lower.

“I’m a buyer of December futures between $3.75 and $3.85. There is still a need to shake a little more storm premium out of this market. Probably there will be a little consolidation, and from there the market will depend on whether another storm rolls in,” Ritterbusch said.

“Even without a storm I see evolving fundamentals in this market as bullish for the longer term. Once the market gets into the withdrawal period in a month or so, the dynamics of falling production, and increased industrial demand will start to have a little more impact.

“The state of the economy has never seen such a variance of opinions. My feeling is that the stock market is trying to tell us that the economy is in pretty bad shape, but the natural gas market is more influenced by price elasticity concerns than it is the overall economy. As long as prices stay below $4.00, there will be continued growth in industrial offtake, even amidst a soft economy. Below $4.00 there won’t be a big impact on P&L statements. Industry will be more interested in the price of natural gas rather than looking at their order files,” said Ritterbusch.

Others see a market downside.

“With a little cold weather early in the year and the way production is faltering, no one is going to sell this market too hard, but in my view the market is finished,” says Bob Deman, analyst with Woodward Marketing Group, Houston. “Long term weather forecasts — granted they are generally unreliable — show an extremely warm winter in the upper MidContinent and Northeast; the economy is slow; and the amount of gas used for electric power has fallen with the use of combined cycle generation. It’s not a pretty picture right now.

“The market is not going to fall out of bed just yet, but I think a good move now is to own some put spreads in February and March. At that point you want to be ready for the next market cycle, where traders hype it up and try to buy the market,” Deman suggests. “The problem is that no one can generate electricity from natural gas and make money at these prices, so it becomes problematical whether the market will be able to advance from factors like increased power demand.”

“The EIA injection number on Thursday was devastating to the bulls. Despite shut-in production, 46 Bcf was added. The industry should expect injections in the high 30 to low 40 Bcf range next week. I wouldn’t be surprised if it got as low as the high 20’s depending on how fast the gas comes back on [after Lili]. My number for next week is in the high 30’s. Some traders are saying last week was 5 Bcf shut in for five days, but I say [it was] 9 Bcf for five days. Thus take off 45 Bcf from 67 Bcf and you’re looking at the low 20’s. When you get rid of the shut-ins and the industry is back to injections of 60 to 70 Bcf, and the only place to put gas in the ground is the production areas, then I expect the market to work lower and hold steady through January.” Deman continued.

(Republished with permission from Bill Burson, https://gastrader.net )

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