Physical natural gas for Tuesday delivery posted gains in Monday's trading led by double-digit, weather-driven gains in New England and the East. Only a handful of points traded lower, and gains in the East, Rockies and California were able to offset sluggish trading in Texas and Louisiana.
The NGI National Spot Gas Average rose 7 cents to $1.85, and eastern locations were pushing average gains of close to 20 cents. Futures took a hit after trading at new highs.
The spot May contract is set to expire Wednesday but traded up to $2.176 before retreating and closing at $2.063, down 7.7 cents. June shed 8.0 cents to $2.187. June crude oil fell $1.09 to $42.64/bbl.
Traders are looking at Wednesday's settlement of the May contract as a guide to the market's direction.
"The key will be if the market Wednesday settles above $2 or below $2," said FCStone Latin America Vice President Tom Saal in Miami. "June will be the spot contract Thursday, and it is priced 7 cents higher, but at expiration the cash and futures most of the time converge, so right now without any super weather on the horizon, cash is right around $2, so you are trading at a premium. If cash does not move up, then the May has to come down.
"Longer term we may be going higher, but short term [this week] if you look at the [Market] Profiles I think you are going a little lower. Chart-wise, it looks like it should grind a little lower, little being the key word. We have a value area in the May contract at $1.913 to $1.94, and there is also another value at $1.99 to $1.976. $1.99 is probably the first target.
"However, natural gas futures prices are determined by human traders with diversified objectives in a double auction market,” Saal said. “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."
Before the market open Monday, Saal expected it 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 aren’t participating.
"After a lower start on the week, gas prices spiked higher, driven by what appeared to be short-covering,” said DEVO Capital President Mike DeVooght in a weekend report to clients. “We have seen a significant drop in the short open interest held by the funds. But they are still holding a large short position.
“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 recommended 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 in 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 President Matt Rogers in a 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.”
In physical market trading, near-term weather forecasts called for temperatures in New England to fall as much as 15 degrees below normal kept buyers on their toes. Forecaster Wunderground.com predicted the Monday high in Boston of 61 would plunge to 44 Tuesday before recovering to 57 Wednesday. The seasonal high in Boston is 59. Hartford, CT's 75 high on Monday was seen dropping to 63 Tuesday and reaching only 65 on Wednesday, the seasonal norm.
Gas at the Algonquin Citygate rose 39 cents to $2.72, and deliveries to Iroquois, Waddington tacked on 2 cents to $2.22. Deliveries to Tenn Zone 6 200L jumped 56 cents to $2.77.
Gas on Texas Eastern M-3, Delivery rose 15 cents to $1.45, and parcels headed to New York City on Transco Zone 6 gained 8 cents to $1.50.
Other market centers posted gains as well. Deliveries to the Chicago Citygate rose 7 cents to $1.96, and gas at the Henry Hub was quoted 8 cents higher at $1.97. At Opal, next-day gas changed hands at $1.80, up 12 cents, and gas at the PG&E Citygate was seen 7 cents higher at $2.09.