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April Continues Lower, Drops Another 6 Cents

April Continues Lower, Drops Another 6 Cents

The bearish American Gas Association storage report was too much for the April contract last week. Despite strength that sent the contract to a new high of $1.965 last Wednesday, April ended the week near its low, down 9.4 cents on news that a large storage surplus remains. After falling 12.1 cents on Thursday, the contract attempted an initial push Friday morning but immediately lost steam, dropping sharply to a low of 1.750 only to zigzag sideways the rest of the day before closing down 6.1 cents at $1.759/MMBtu.

The continuing downturn led some observers to wonder if the eight-day up-trend prior to Wednesday's Access session was merely a short-term correction in an overall bearish market that has lasted since last fall. "We've kind of gotten to the threshold where it kind of calls into question whether you're having a downward correction within an up-trend or whether you're doing something more significant than that," said Tim Evans of the Pegasus Econometric Group. "I'd like to leave the question open as long as I can."

The Commitment of Traders report, released by the CFTC on Friday, showed that the reportable non-commercials instead of being net short 30,000 contracts as they were two weeks ago last Tuesday, were net short only 585 contracts as of March 9. "There is essentially no short vulnerability left in the market," one analyst noted. "That puts us in a position that is, at least from a commitment standpoint, dead neutral. We have to either convince these funds that they need to get themselves long and the only way we're really going to do that is to break above $1.965. Even if we were up 10-12 cents on Monday, that's still not likely to impress them."

But Evans predicts the April contract will continue to work lower Monday and Tuesday. "About $1.70 is the next benchmark [support] area," he said. "If we break that level then you're looking at a retest of $1.625." There's a problem on the technical charts because of the rapid rise of the April contract, Evans added. "The market rallying straight up was impressive, but then when we pass back down through that same price range there's no way for the market to get a toehold and catch itself."

Other observers see some potential short-term strength coming from the weekend weather report, which is calling for a Nor'easter to visit the East Coast. The major storm was making its way across the Plains' states on Friday dumping huge amounts of snow and was expected to cause severe thunderstorms across the Southeast prior to turning up the East Coast.

"Weather I think is going to tell the story next week," said Ed Kennedy of Pioneer Futures. "I do think we're getting a little over-sold. That's only a technical opinion but if it does try to rally it will run into pretty heavy selling in the low-80s. Some of the models are saying the strength of this Nor'easter going up the East Coast is going to be great and it will suck a lot of cold air out of Canada; some of the other models are saying no."

If the storm fizzles, however, Kennedy said he's expecting the market to go into a new sideways trading range not using the highs of last week as the ceiling but developing somewhere between the low-70s and low-80s. "We're at $1.760 and I don't have the warm fuzzies one way or another," he said.

Jeff Manna of Omaha-based Strategic Weather Services said the storm probably won't hit New England until late Sunday. "Monday looks pretty nasty," he said. It's expected to be "real close to the big cities." But there still is some question about the snow line. "Right now I tend to believe it will be cold enough to snow [from Philadelphia northward through New England]. New York, Hartford and Boston could really be in for something. If we get enough cold air in there the potential for six to 10 inches is pretty likely," said Manna.

The weekend weather report may be very exciting but the National Weather Service's new six- to 10-day outlook has the middle two-thirds of the country carved out for above normal temperatures. Normal temperatures are forecast March 18-22 over the East Coast and Rockies with the Pacific being the only region visited by below-normal temps.

"I don't see anything behind this storm," Manna agreed. "We'll be seeing a pretty good warm up by at least the middle part of next week across all of the eastern U.S. Some real warmth also will be centered over the Plains states."

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