Natural gas futures eased slightly in Tuesday’s trading as market bulls were unable to sustain their buying enthusiasm and traders noted an abrupt intraday tumble. Trade and commercial accounts may now be willing to lock in favorable prices. April natural gas futures fell 2.4 cents to $10 and May dropped 1.1 cents to $10.064. Crude oil continued to rampage higher, trading as high as $109.05 before settling at $108.75, a record.

“What was interesting is that natural gas couldn’t sustain today’s highs. The market got close to the overnight highs but dropped down to $9.930 in a matter of minutes. The possibility exists that they [hedge funds] are running out of steam,” said a New York floor trader.

“The trade feels that these prices are ridiculous,” the trader said. “But my rebuttal to those trade accounts was that since there are a few dominant money players who are trying to hold the market up, it’s going to be up to trade and commercial accounts to say ‘this is it’ [prices are high and worth selling into].”

He added that trade accounts were saying that there would be adequate storage gas going into the injection season and thus current high prices were not justified.

“There has to come a point where the trade has to take over and say fundamentally ‘we have to take advantage of this and give it to these guys and sell it to them.’ Once the hedge funds who are dominating this market see that the trade is starting to press back, that’s when they will bail [sell].”

Others see the current advance as orderly and less the result of any combat between trade and speculative camps. “The price ranges are expanding because of the supply-demand balance tightening up,” said a Houston physical and financial trader. He noted that his back-of-the-envelope analysis showed that in order to get to full storage by the end of the injection season there were significant supply hurdles that needed to be met. “There is a 1.5 Bcf/d shortfall because of a lower starting inventory, a 0.5 Bcf/d storage expansion and an estimated 0.5 Bcf/d production curtailment from hurricane-related shut-ins. Roughly, that’s what you are looking at. No one knows where that extra gas is coming from,” he said.

Others might not view the recent price advance as particularly orderly but still see a bullish weather and storage dynamic in place. Last week’s storage withdrawal of 135 Bcf lowered inventories to 1,484 Bcf, yet significantly lower season-ending supplies are in the cards.

“We view the four-year average of about 1.41 Tcf as a more appropriate comparison and as a result, we are viewing this year’s expected shortfall as a bullish dynamic that may require additional discounting by futures,” said Jim Ritterbusch of Ritterbusch and Associates. Any decrease in supplies will have longer-term implications, but “for the moment much of this discounting process continues to take place toward the front of the spread curve.”

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