Nymex Fall-Off Tempers Bullish Euphoria
It has been a good spring for bull traders at Nymex. Since
February 26, the now-spot June contract has rallied nearly 70 cents
to trade as high as $2.40 last week. But just as constructive
technicals and low storage injection figures seemed to point to
continued strength, the market spiraled lower Thursday and Friday.
And while long liquidation spurred by the bearish one-two combo of
nuclear units coming back on line and moderating temperatures
across the country were as good as reasons as any for the market
turning lower, traders remain divided as to the price direction
heading into the summer. June finished the week mixed at $2.273, 2
pennies above its close from the prior Friday, but 2.2 cents lower
for the day.
A Chicago marketer was surprised by the market's ability to
trend lower into the weekend, despite the low storage injection.
However, he feels that the real test will come this week, when the
refill will be compared to the 100 Bcf seen last year. "I look for
another small number-maybe 40 or 50 Bcf-to really put the wheels in
motion. It will be hard for the market to continue lower if we
can't inject even half as much gas as we did last year."
However, Tom Saal of Miami-based Pioneer Futures takes the
opposing view on the storage situation. Increased pipeline capacity
to Midwest, he argues, has diminished somewhat the need for storage
supplies as a safety net. "What it means there is not as great a
necessity for people to buy gas today for future use. That
translates into less demand for storage injection gas this summer."
He added that the decrease in demand should help to offset, at
least in part, the expected decreases in deliverability, which some
analysts predict will be on the order of 3-5%.
Looking ahead, Wednesday's storage report will not be the only
market data talked about this week when market participants meet in
Dallas for the annual industry trade show. Growing long positions
held by non-commercial traders as evidenced by Friday's Commitments
of Traders report (see table) will undoubtedly be a hot topic. The
Commodity Futures Trading Comission (CFTC) reported that
non-commercial traders or "speculators" had increased their net
long holdings to a record 48,029. Because non-commercial traders
cannot take delivery, market watchers are begining to wonder when
and how fast they will sell-off those long positions.
In order for June to move much lower, it will need to break
below support at $2.205, a chartist said. Resistance hangs at prior
highs of $2.405, he added.
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