Looking at Monday’s wild trading day in natural gas futures and perhaps taking a moment to regroup and contemplate their next moves, traders on Tuesday tested both resistance and support before pushing the April futures contract sideways.

After running up to hit a high of $7.23 just prior to 10:30 a.m. EST, the prompt month quickly descended to meet support at $7.07. For the remainder of the day, April natural gas leveled out, trading just above and just below Monday’s settle for the remainder of the session before closing at $7.179, up 4.1 cents.

Crude and heating oil futures were fairly quiet Tuesday as attention was squarely on April natural gas following Monday’s 36.6-cent breakout to the upside (see Daily GPI, March 15).

A Washington, DC-based broker said he saw Tuesday morning’s high-low routine as some people taking profit from the previous night, noting that there wasn’t any real new news or market direction. “After the low came in, we saw solid buying basically with orderly setbacks through the rest of the day,” he said. “I would say that today’s action was confirming of Monday’s powerful move.”

Commenting on Monday’s significant rise, the broker noted that once futures “started pushing through that old $6.85 level, things started moving. Once we took out $7, the floodgates really opened.

“I think a lot of the funds were covering shorts. I don’t know whether they were covering shorts and then going long in the same trade. It is quite possible they were. As a result, I would expect Friday’s Commitment of Traders report to show the liquidation of the remaining noncommercial short positions,” the broker predicted.

He noted that the April contract in Monday’s overnight Access trading session reached $7.26, which eclipsed the previous $7.25 high from Nov. 24, 2004. He said the futures market’s current pattern fit his general thesis that when April moved out of its recent trading range, it was probably going to move to the upside. “Next up on the hit parade is probably a probe of the $7.25-7.26 highs. There might be a little bit of backing and filling in the days ahead, but we will probably take [$7.26] out as well. We could still see some push beyond $7.26 to the $7.40 level,” he said. “However, on a technical basis, we might start to see some weakness to the move.

“While I find it hard to believe that we could take out the old highs from back in November, given that we are in March, there is a historical spring price rally and we are on the cusp of spring.”

The broker added that the sell-off back in February could have signified the end of the winter dip. “What could be going on now is the anticipation of spring and summer demand coming in. I really don’t think we are going to make all-time new highs right now in this move, but I do think we still have some more upside to go on this. Maybe 15-20 cents higher.”

With cold March temperatures continuing to hold on at least for now, at least one or two more sizeable natural gas storage withdrawal reports are possible. The heating degree days (HDD) forecast for the Mid-Atlantic and industrial Midwest will undoubtedly increase gas consumption by commercial and residential users. The National Weather Service (NWS) expects substantial upward variances from normal in the levels of HDD for the larger gas-consuming areas of the U.S.

For the week ending March 19, the NWS expects above-normal HDD for both the Mid-Atlantic states of New York, New Jersey, and Pennsylvania and the East North Central states of Wisconsin, Illinois, Indiana, Michigan and Ohio. The Mid-Atlantic is forecast to receive a bone-chilling 221 HDD, 34 above normal, and the East North Central 241, 46 above normal for this time of year.

If the continuing trend of greater-than-normal March HDDs holds up, it could do much to alter the course of what up until now has been a relatively mild winter for the major energy-consuming markets. The accumulation of 221 HDD for the third week of March would put the Mid-Atlantic on target to receive more than its historical March level of 827 HDD, and the East North Central tally for the week of 241 would position that area of the country to score well beyond its normal March total of 864 HDD. The HDD tallies are made relative to the average over the 1971 to 2000 period.

“The cold weather pattern continues in the East and after the withdrawal of well above average amounts of gas from storage last week, the expectation of another high withdrawal this week is the biggest change to natural gas fundamentals,” said Marshall Steves, analyst with Refco in New York. He also said that once April futures surged through $7 Monday, it generated a lot of technical buying. “I expect the prompt futures to stay in a range of $7 to $7.25 as long as the crude oil remains strong,” he added.

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