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Natural Gas falls, break major support level

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From Jeremiah Shelor : January natural gas futures were down 17.8 cents to $3.946/MMBtu shortly before 9 a.m. ET Friday, with prices dipping below the $4 mark as forecasters pointed to patterns showing milder temperatures sticking around in the East into late December.

The latest forecasts showed mild conditions leading to below-average gas-weighted degree days (GWDD) through the end of the month, according to Bespoke Weather Services

“Overnight weather model guidance trended significantly more bearish, as all weather model runs showed ridging able to build across the East in the long-range that would prevent GWDDs from rising back to season averages into the end of December,” Bespoke said. There was a “large spread across models” in the latest runs, with the American guidance coming in the coldest as the European “showed even more pronounced warmth with sustained ridging that only looks to begin to be disrupted into early January.”

While bears appear to be in control for now, the first signs of sustained cold would likely send prices spiking, according to the forecaster.

“Warmth dominating through the month should allow balances to stay loose and will ease the majority of storage concerns, which could even make prices around $4 appear overvalued if warmth can win out into the first third of January as well,” Bespoke said. “However, it would be premature of this market to price out any colder risks in January.”

In its latest 11-15 day outlook Friday, Radiant Solutions said forecasts for the period have varied over the past few days, with models diverging on their “upstream projections over the northern Pacific.”

American guidance has “most consistently built ridging through Alaska and a downstream colder response in the eastern half,” Radiant said. “The European model, on the other hand, has slowed this near Alaska ridge build and is significantly warmer” than its American counterpart.

“Knowing model struggles in their handling of the tropical” Madden-Julian oscillation (MJO) “forcing earlier this season, our approach is to provide a standard MJO phase 5-6 response with a warmer than normal national pattern. Confidence is very low, however.”

Meanwhile, the Energy Information Administration (EIA) on Thursday printed a slightly smaller-than-expected draw of 77 Bcf, which was just a touch lighter than the five-year average withdrawal of 79 Bcf but sharply ahead of last year’s 59 Bcf pull. Total working gas in storage fell to 2,914 Bcf, 722 Bcf below last year and 723 Bcf below the five-year average.

“Compared to degree days and normal seasonality the 77 Bcf withdrawal is about 5.3 Bcf/d loose versus the five-year average,” Genscape Inc. analyst Margaret Jones told clients Friday. “Total power generation was up around 7 average GWh versus last week. Nuclear and renewable generation was down 3 average GWh as wind fell off 4 average GWh week/week (w/w) and hydro was up around 1 average GWh.

“Coal was up around 3 average GWh, and gas was up 7 average GWh w/w for an estimated 1.3 Bcf/d more gas burn w/w.”

January crude oil was trading 17 cents lower at $52.41/bbl shortly before 9 a.m. ET, while January RBOB gasoline was down about 1.4 cents at $1.4645/gal.

The United States Natural Gas Fund L.P. (UNG) was trading at $31.27 per share on Friday afternoon, down $2.17 (-6.49%). Year-to-date, UNG has gained 34.09%, versus a -1.68% rise in the benchmark S&P 500 index during the same period.

UNG currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #52 of 108 ETFs in the Commodity ETFs category.

This article is brought to you courtesy of Natural Gas Intel.

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