May natural gas is expected to open 3 cents lower Monday morning at $2.11 as traders discount near-term weather forecasts and expect a near-term consolidation. Overnight oil markets fell.
According to Tom Saal, vice president at FCStone Latin America in Miami, conventional wisdom says there is absolutely no fundamental reason for natural gas futures prices to go higher. "However, natural gas futures prices are determined by human traders with diversified objectives in a double auction market. Conventional wisdom can take its chances in the natural gas futures market like every other trader. Only participating traders influence the price of natural gas futures," he said in a Monday morning report to clients.
In his work with Market Profile, Saal expects the market to test last week's value area at $2.132 to $2.054 before moving on and "eventually" testing $2.281 to $2.151.
Risk managers seem not to be participating. "After a lower start on the week, gas prices spiked higher, driven by what appeared to be short-covering. We have seen a significant drop in the short open interest held by the funds. But they are still holding a large short position," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.
"Natural gas will most likely be in a holding pattern until we get closer to the summer cooling season. If we get warmer than normal temperatures early in the season, we could move back into the mid-$2 range. On a trading basis, we will continue to stand aside and await further developments."
Should the opportunity avail itself, DeVooght does recommend that producers and physical market longs hedge the April-October strip at $2.70. At Friday's close, however, the strip settled at $2.398.
Weather forecasters for the first half of May see heating load that won't go away. "A combination of bigger ridging along the West Coast, especially into Canada, and continued blocking around the Pole and Greenland are assisting cooler changes to the forecast for both the six-10 and 11-15 day compared to Friday's expectations," said Commodity Weather Group in its Monday morning report.
"It is seriously suppressing attempts at a warmer May pattern. For the first half of May, climatology offers more heating degree days than cooling degree days nationally; therefore, these weekend changes are a net demand increase with the main impact being overnight heating demand across the Midwest and into the Northeast," said Matt Rogers, president of the firm.
In overnight Globex trading June crude oil lost 30 cents to $43.43/bbl and June RBOB gasoline dropped a cent to $1.5344/gal.