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Traders See Nuclear Incident, Market Squeeze Prompting April Gains

April natural gas futures posted a solid advance Tuesday, leaving some calling for a new price regime while others still see a continuation of a rangebound market. At the close April had risen 9.3 cents to $4.254, the highest settlement since early February, and May gained 9.0 cents to $4.331. The expired April crude oil contract rose $1.67 to $104.00/bbl.

"The close today was significant. It's the highest settlement in over a month," said Eric Bentley, CEO of Viking Energy LLC in New York. Earlier "the back end of the curve had strengthened and that would pull the front of the board up, but now we are seeing funds rolling their [short] positions coming into next week's expiration.

"Weather doesn't seem to be much of a factor, and the market perspective is one of fear of nuclear power with natural gas becoming the fuel of the future. Some of the funds are rolling positions out of April into May but still staying short. With a settlement like this, you might get an eyebrow raised to see what kind of price action occurs Wednesday.

"On a chart basis the market looks like it has turned the corner and changed mentalities from a market that is going to $3.50 to one that is going to $4.50. It's based on a squeeze of short players rather than its inherent value."

Mike DeVooght of DEVO Capital still sees a rangebound market but has his points where he is willing to admit to a trend higher. "We have the high $4s to the high $3s, but if we were to get closes above $5 it would show a lot more strength than most people expect.

"We also have to get something to give urgency to the buyers and give the sellers some hope to hold off until tomorrow. It would be pretty bizarre if a tsunami in Japan caused this market to rise, but it won't take many nuclear incidents for people to say these nuclear plants are done and let's concentrate on the natural gas in our backyard. It's a domestic supply, and there is a lot of it out there, and it's clean. If politicians really believe in that, they should speed up the infrastructure of the natural gas market. It would only take a couple of proposals like that to pop this market 75 cents and take the sellers out of it."

Other analysts see the primary near-term price drivers as largely technical. "Source of strength is difficult to pin down but appears related to short-covering on the part of the large speculators amidst an improving chart picture that will look even better if fresh six-week highs are posted today [Tuesday]," said Jim Ritterbusch of Ritterbusch and Associates. "The fundamental rationale behind the recent show of strength is somewhat elusive with the weather factor diminishing in importance. However, an upcoming sharp temperature drop across the upper Midcontinent could be fueling some of the gains as a storage withdrawal would appear likely in next week's EIA [Energy Information Administration] stats."

Technical traders see the next objective for the bulls about 15 cents higher. "With a potential doji star top on the daily candlestick chart, peaking action is possible," said Brian LaRose of United-ICAP in a Monday evening note to clients. "Should natgas pull back, we will be looking to the ratio retracements of the $3.731-4.230 advance for support. At this time any retreat will be considered corrective." The market can avoid any setback to present bullish momentum by continuing higher and reaching $4.305-4.344, he said.

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