June natural gas futures gained ground as traders covered short positions prior to both the June contract expiration and the release of government inventory figures. At the closing bell June natural gas had risen 3.4 cents to $4.379 and July had gained 3.2 cents to $4.423. July crude oil jumped $1.73 to $101.32/bbl.
"We got a little bit of a rally as options expired," said a New York floor trader. He added that the June-July spread had "come in a little bit, but most of the other spreads didn't do much. August-September has been right around two and a half cents for the last couple of days."
He thought that "there might be a few shorts in the market and it could run up a bit from here. With Thursday's inventory report we will get a double whammy when June contract expiration is factored in.
"We are hearing an 86 Bcf build for Thursday, and I am looking for a build between 85 and 95 Bcf. I think that range of build is already in the market."
The trader pegged upside resistance at $4.50 and "if we get to $4.50 to $4.55, then I think the market has room to move to $4.76 to $4.78. On the downside support is at $4.10 to$4.15."
Analysts see something of a disconnect between present inventory levels of 1,919 Bcf and the market. "We are 235 Bcf less than a year ago, but we are trading at the same price," said a New York analyst. According to his calculations, "it's very difficult to think that we are at any kind of fair value when we are already in the hole 235 Bcf. Demand is up and there is no evidence that supply is robust."
Peter Beutel of Cameron Hanover in Connecticut is putting the pencil to Thursday's inventory report and sees roughly the same increase as the New York floor trader. "The EIA [Energy Information Administration] report showed a build of 104 Bcf last year and had builds of 106 Bcf in 2009 and 107 Bcf in 2007. The five-year average is a build of 96.8 Bcf, although it was 88 Bcf a year ago. The 10-year average is a build of 92.4 Bcf. We expect to see a build of 90-95 Bcf. If it is more than 100 Bcf, it will be seen as being bearish, we expect."
Jim Ritterbusch of Ritterbusch and Associates sees a build of 92 Bcf and Kyle Cooper of Houston-based IAF Advisors forecasts an increase of 101 Bcf. These will be compared to last year's 100 Bcf build and a five-year average of 95 Bcf.
Forecasters are calling for searing temperatures in the Southeast, but traders are in something of a "show me" mood and want to see that translated into usage.
"The Southeast has been home to some of the quietest weather across the entire country over the past week or so, and this quiet weather will continue on Wednesday," said AccuWeather.com meteorologist Andy Mussoline. "A dome of hot, dry weather will be present over the Southeast as a high-pressure system remains in control across the region. The high-pressure system will keep dangerous thunderstorms away from the region."
According to Accuweather.com, high temperatures will soar into the 90s across most of the Southeast, including major cities such as Atlanta, Raleigh, NC, and Jacksonville, FL.
With warmer temperatures in the forecast, a positive market response would normally be expected, but Tuesday's essentially flat finish was not seen as auguring a market advance.
"In some respects, [Tuesday's] finish was an achievement for the bears because prices could have posted gains on anticipated hot weather coming. But prices ended in the middle of the day's trading range, so it is hard to get too excited about yesterday's final prices," said Beutel. The market is "at the stage where we need to see prices start to react to better demand from temperatures already experienced. The market effectively said yesterday that there is a limit as to how far it will let prices move higher."
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