After trading significantly lower in overnight Nymex Access activity, April natural gas futures went on to set a session low of $6.63 on Monday morning, giving the appearance that the $6.55 support level of the current futures range could be in danger. Despite the scare, the prompt month rebounded in the afternoon to finish the day at $6.714, down 3 cents on the day.

With April settling less than a cent lower than its $6.72 Monday high, market watchers might notch the day’s action as bullish. However, Commercial Brokerage Corp.’s Ed Kennedy said the futures market is still stuck in a trading range, noting that “it may not move for awhile.

“We are flat stuck in this trading range between $6.55 and $6.80,” he added. “We closed a little bit higher than the middle of it on Monday. This market has no leadership — one way or the other — for the time being. If it closes above $6.81, bye-bye, we are off to the races. However, if it sails below $6.55, then [we could be headed lower]. It really appears that we are just trading the ranges.”

Kennedy pointed out that it is important to remember that futures are trading the injection months here and not the weather going on outside today. “We could get really cold weather and see the cash market jump 30-40 cents and see futures stay in its current trading range,” he said.

The broker added that he is unsure on which direction futures will travel after the current trading range is broken. “It’s hard to say right now,” Kennedy said, noting that it is an “absolutely neutral” consolidation currently.

“The other thing is we are already in the second week of March. Even on the weather front, there is not a lot of winter left and there is plenty of gas in storage to handle any type of weather that does arise.” He said traders are currently awaiting the long range forecasts for the weather this summer. “We are marking time awaiting the next bit of information of importance,” Kennedy said.

After trading hours Friday, the Commitments of Traders Report showed a substantial decrease in the number of short positions (futures only) held by funds and managed accounts (noncommercials). The report showed that as of March 1, noncommercials held a net short position of 16,105 contracts, a huge decrease from the 40,224 shorts held a week earlier. It demonstrates that much of the rally in natural gas futures from Feb. 23 when the April contract jumped 19.9 cents to the present has been fund short-covering.

“The question is when are [the funds] going to get long…if they are going to get long,” Kennedy asked. “I don’t know.”

At the same time, figures show that the buying by funds was offset by a rise in holdings of short positions by commercial accounts. They are taking advantage of the attractive differentials existing between spot April futures, which closed Friday at $6.744, and the deferred December contract at a lofty $7.827. By selling December or other deferred futures, a marketer or other physical market player can capture a large portion of the $1.00-plus difference between spring and winter delivery periods.

“The commercials shifted from a modest net long position of around 4,600 contracts to a sizable net short position of almost 29,000 lots during the latest reporting period,” reports a Midwest analyst. He said that approximately 75% of the reduction in the fund short position was offset by an increasing short position by commercial accounts. “We expect this trend of the funds trading places with commercials to continue as prices have failed to weaken significantly even amidst the commercial selling pressure,” he said. He went on to say that he expected a shift to a net long position by the funds into the spring in a pattern similar to last year.

Position shifting or not, others see little opportunity for natural gas buyers to capitalize on any protracted drop in prices. “For the next two to three months I think there is very limited downside,” says Bob Deman, analyst with Atmos Energy Marketing in Houston. He said that he didn’t see any way for natural gas prices to decline with “$53 crude underpinning it.”

©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.