December natural gas continued its downward spiral Friday as near-term weather appears likely to encourage greater storage additions and technical support has yet to be fully realized. At the close December had fallen 9.4 cents to $3.316 and January had eroded 5.0 cents to $3.496. December crude oil shed $1.41 to $97.41/bbl.

Longer-term natural gas demand may be set to increase from a new set of government regulations. The Cross-State Air Pollution Rule (CSAPR) requires 27 states to significantly improve air quality by reducing power plant emissions that contribute to ozone or fine particle pollution in other states.

“I spoke with a utility friend of mine and he thinks it’s going to be big,” said Tom Saal, vice president of Hencorp Futures in Miami. “Utilities are likely to play on the safe side and not burn coal. It’s not a big deal in Florida, but my friend said it would help natural gas demand and prices.”

In Friday’s trading December futures waded into a number of technical parameters that need to hold as support in order to suggest the pervasive downturn is over. According to one analyst, the market still has some work to do to fully demonstrate that the persistent price pummeling is complete. “Is this the end of the decline?” queried Brian LaRose, analyst with United-ICAP. “Divergence is visible from oversold levels on the intraday RSI [relative strength indicator] and the large cluster of wave count objectives and ratio retracements stretching from $3.331 to $2.792 has been touched.

“To suggest natgas has hit bottom both $3.547 and $3.729 must be decisively exceeded. Until this can be accomplished a more substantial test of support cannot be ruled out,” he said Thursday in a post-close note to clients.

Others see the market continuing about 10 cents lower. “Our bearish stance regarding this market was reinforced [Friday] with the establishment of new one-year lows that developed on the heels of a seemingly bullish storage report [Thursday],” said Jim Ritterbusch of Ritterbusch and Associates. “Much of this renewed selling appeared temperature-related as above-normal expectations now stretch into the beginning of December. This could delay establishment of a peak in supply and with stocks already at record levels, this ample stockpile will be available to meet requirements of even an exceptionally cold winter in which HDDs [heating degree days] exceed averages by more than 10-12%. And despite receiving some supportive news of late from the rig counts, the market is still sending off strong signals that output will need to be deterred further by low prices before a bottom is placed.”

Baker Hughes reported that for the week ended Nov. 18 gas-directed rigs dropped by six to 871, about 7% fewer than the 936 operating a year ago. Total U.S. rigs fell by 15 to 2001, and the number of horizontal wells fell by five to 1,147.

“While this was a smaller decline than the past couple of weeks, it would appear that a downtrend is beginning to be established that could begin to force some commercial buying interest. But in the meantime, additional price declines would appear likely with nearby futures headed to our targeted $3.22 area in next week’s trade,” Ritterbusch said.

Bears can expect a supportive weather outlook to aid their cause in the near term. MDA EarthSat in its six- to 10-day forecast shows the entire U.S. at normal to above- to much-above-normal temperatures. The warmth is widespread, north of a line from Virginia to New Mexico and east of a line from Idaho to Southern California. “This period continues to feature broad warmth, with a focus of the strongest anomalies over the North-Central U.S. Only some marginal cool changes were made along the East early on, where it appears the warmth will again be slower to arrive,” the forecaster said.

“Cool air availability will be cut off for the most part by a strong Gulf of Alaska low, which will drive the warm Pacific flow across much of the nation. A weak cool shot of Pacific origin will move towards Texas from the West late, bringing weak ‘belows’ to close out the period.”

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