Natural Gas and Crude Front-Month Follies

October 15, 2012 10:57 AM

Natural gas and Crude oil futures pricing have been like a Jason Borne movie for the last week and the intrigue continued today. El Nino, global tensions, storage reports, corn prices, drought...a lot of factors have figured into skittish behavior in the technicals on Nattie and Crude front-month futures. Here is how it all shook out on the day, today.

Natural gas has been soft since December 2, 2011 when a warm winter eased demand and allowed for the robust domestic supply the U.S. now holds. Current storage is at 3,725 Bcf for the lower 48 states, nearly 7.8% over five-year. But news that injections have slipped in each of the last six weeks to lower than year-over injections put a bee in nattie's bonnet that sent prices to a new top last week at $3.63.

Near-month natural gas (NGX12.NYM) opened today at $3.59, tested a new range briefly this morning but fell sharply to find support all they way down at $3.45 before ending the day twelve cents lower at $3.49.

Based on the five-day chart, look for natural gas to get comfortable in its new range in the next few days between $3.45 and $3.51, but watch out for dramatic jumps. If natural gas violates this range either to the low or high side, it could indicate a jump is coming. Nattie near-month futures made a 16 point bound to the upside last Tuesday, another 12 point increase on Thursday and fell today by 13 points. More negative news on injections or a cooler revised climate outlook could send natural gas back upward in a big hurry. Keep an eye on your Inputs Monitor in the coming days as were are watching this movement closely.

Meanwhile, the spread between WTI Crude and Brent Crude futures has remained very wide, closing today with a spread of $23.94 (premium Brent). WTI front-month crude was lower today by $0.02 to $91.83 while Brent crude added a full percentage point to end today at $115.77.

Near-month crude futures have trended mostly sideways since Oct. 9 when crude made a $2.08 run at the upside. Here again we have seen a tendency to move sideways, punctuated by big moves in both directions. Look for November crude to find a range between $90.00 and $93.00, but again, we have seen crude futures prices make some leaps in the last week so watch this market closely.

As we head into winter, look for continued skittishness, but with a slight uptick in injections and moderating temperatures, we may see this volatility ease. However, both of these contracts have proven they are willing to make leaps when they can, plotting a path that even Jason Borne himself would struggle to track.



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