September natural gas futures managed to stage a modest rally, but still stayed within narrow trading parameters Monday. Traders cited tropical activity and forecasts for warm weather as being the bullish culprits, but suggest that this is a “sell rallies” market. September rose 10.1 cents to $8.349 and October gained 9.2 cents to $8.422. September crude oil fell 75 cents to settle at $114.45/bbl.
Traders see today’s rise as the result of “storm premium” and hints of warmer weather being inserted into the market, but think these are selling opportunities. “We did have a little rebound on the close and there are a couple of storms brewing. EarthSat also inserted some warm weather in their 11- to 15-day forecast,” said Jim Ritterbusch of Ritterbusch and Associates.
The Atlantic Basin is active. AccuWeather.com reports that a large tropical wave is located along 47W and south of 17N and is tracking west at 15 knots. The forecaster said the wave is currently causing a broad area of showers and thunderstorms across the central Atlantic, and it “has the looks of a developing tropical cyclone and could become a depression or tropical storm over the next couple of days as it heads toward the Lesser Antilles,” said meteorologist Rob Miller.
In addition, there are two other features that look “promising.” Another tropical wave farther east along 35W and south of 16N is weak, but it continues to cause showers and thunderstorms over the central Atlantic. A second wave along 22W and south of 16N is causing showers and thunderstorms over the eastern Atlantic. Miller said “both features have some type of cyclonic circulation as they track to the west at about 15 knots. It is these features that the GFS [Government Forecasting Service] has been incorporating into a tropical cyclone that intensifies and tracks toward the East Coast of the United States [in] the middle to latter part of next week.”
In its 11- to 15 day forecast MDA EarthSat says its interpretation of complex weather models shows warmer weather returns to the northeastern quarter of the continent here as high pressure backs in from the Atlantic, and ridging rebuilds. “Though the operational runs of the American [model] do offer varying solutions, the ensembles have generally been consistent this morning in placing this warmer weather in key areas such as the Mid-Atlantic and Eastern Midwest,” said Matt Rogers, Director at MDA EarthSat. On a scale of one to five, EarthSat ranks confidence in this forecast at two.
Technical analysts see support developing for faltering futures but at much lower levels. “Last week fell to an $8.199 Friday low [in electronic trading] and a bearish tower on the weekly candlestick. There was another brief intraday short-covering rally on Friday, but by the end of the day the bears were back in control,” said Walter Zimmerman of United Energy.
In spite of Monday’s rally, Zimmerman sees the overall market direction as lower. “Our next step down from here targets $7.734 as 0.618 of the entire $4.050 to $13.694 advance. The failure to reverse higher by this $7.734 level targets the $6.805-$6.445-$6.110 cluster,” he said.
The cluster of prices is derived from Zimmerman’s analysis of market retracements and advances going back as far as the December 2005 post-Hurricane Katrina high of $15.780 and the September 2006 low of $4.050. Zimmerman is “still expecting long-term support into this zone,” he said in a morning note to clients.
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