September
22, 2004
Well,
it certainly appears that the short to medium term bearish
sentiment has evaporated in natural gas. It lasted almost four
months and resulted in prices coming off more than $2. That’s
not too bad of a trend in this long-term bull market. October
natural gas bottomed out last Thursday with an intraday low
of $4.52. Since then, with Hurricane Ivan being given the bulk
of the credit, prices have gone vertical to close at $5.63
on Wednesday. Total natural gas production lost through Wednesday
from Ivan is estimated to be 39 bcf.
This week’s strong rally is showing a freakish similarity
to what happened in early December of last year. During the switchover
from December to January in the prompt month from late November
to mid-December in 2003, prices increased from about $4.75 to $7.00.
Although October is “only” at $5.63 now, the January
contract did settle north of $7 on Wednesday. Further, crude prices
were in the low 30’s during the price rally last year. With
a $15/bbl higher crude price, or about $2.50/mmbtu, a similar rally
to last year could get us north of $9 with even a hint of an early
winter.
To temper some of this bullish talk, open interest has declined
about 10,000 contracts since last Thursday, which usually means
the move is less powerful. However, the rally last year started
in a similar fashion with open interest first declining and then
increasing half-way through the rally.
Total storage is at 2.874 bcf. Last week’s injection of 99
bcf was on the high end of expectations, virtually the same as
2003, and 16 bcf more than the five-year average. The surplus over
2003 stands at 255 bcf while the surplus over the five-year average
is 201 bcf. Expectations for this week’s number are substantially
lower at 65 bcf due to Ivan. The NYMEX EIA derivative auction on
Wednesday afternoon puts the number at 61 bcf, and has been a good
forecaster since its inception earlier this year. Ivan has most
likely killed the possibility of hitting an all-time storage high
this season, but 3.2 tcf is still reachable.
Since we showed the 12 month rolling strip chart in natural gas
last week to illustrate the short term bearish trend we were in,
let’s use the same chart to illustrate the likely breakout
into a bullish trend that has occurred this past week. Pay attention
to the demolishment of the resistance trend line and 40 day moving
average on Tuesday of this week.
With
crude oil settling above $48 today and nearing all-time highs,
look out for a move from Washington to halt SPR filling or even
put some oil back into circulation. It is an election year.
October support is expected at $5.39. Resistance is at $5.90.
Matt
Waldis
