Natural gas prices remain under pressure as above-normal weather forecasts overshadow a record high storage withdrawal.
Yesterday's early-released EIA storage report showed a 162 Bcf withdrawal tying a record high withdrawal for the month of November. Current gas in storage of 3,432 Bcf is 9.2% below last year's level and 10.4% below the 5-year average.
The spot January 15 contract rallied up to a 4.529 high following release of the report but couldn't hold onto the gain as sellers came in dropping the contract lower into the close. Loses for the day amounted to 072 with the January contract closing at 4.331.
Weather forecasts remain bearish which has led to renewed selling in the overnight market. Trade back toward the lower-4.000 level, if reached, should be well supported by both speculative and end user buying.
Longer term, a winter rally is expected initially back toward the 4.950-5.000 once sustained winter heating demand finally arrives. If winter is colder than expected as some of the private weather forecasters are predicting, trade into the 6.000-8.000 range similar to last winter cannot be ruled out.
The hedge funds have been clobbered in the crude oil market and are going to need a market to help recoup losses ahead of the end of the year. Natural gas could be the market they target as it is the most volatile commodity on the board.
Recent volatility is likely a sign of further things to come. With storage below previous years' levels, the potential for a strong winter rally remains high.
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