Despite Warm Weather Traders Don Bear Coats
After a volatile three days of seller-dominated trading Tuesday,
Wednesday and Thursday last week, the futures market was quiet
Friday as light pre-weekend short covering was almost perfectly
matched by follow-through selling. The August contract could manage
only a 4.5-cent trading range before finishing 0.1 cents higher for
the day at $2.163. Estimated volume was relatively modest, with
55,158 contracts changing hands.
A Chicago trader expects more of the same this week when trading
resumes. "The market banter is calling for a period of
consolidation followed by another move lower to test the $2.06,
$2.00 and possibly the $1.95 mark," he said.
"Funds are still long and they are slowly letting the air out of
the tires," adds Tom Saal of Miami-based Pioneer Futures. "Only now
they have momentum and lack of fundamentals are in their favor.
Some people think that because of weather forecasts that continue
to call for warm temperatures, prices should stay strong. What they
fail to realize is that despite record-setting temperatures last
week the best the market could do was trade at index levels. Can it
get any hotter than it was [the week before last]?" Saal asked,
only half joking.
What about all the talk of decreased production and reduced
deliverability? An exaggeration, insists Saal. "The cure for higher
prices is higher prices," he quips. Supply has already started to
respond to higher prices. Rig counts are up and [Department of
Energy] supply figures are starting to look better, he continued.
And Susannah Hardesty of Indiana-based Energy Research &
Trading shares his bearish view. She feels that even if support at
$2.15 holds initially this week, it will eventually fall by week's
end. "Remember, that the overwhelming trend in futures prices is
down, during the month of July. Even with the tight injections this
spring and this [past] week, the storage situation is currently
larger than all prior years since the [American Gas Association]
has been keeping data in 1994," Hardesty wrote in Natural Gas
Weekly Report dated July 8. Looking ahead, she looks for prices to
notch the first bottom of the Summer low on a move between $1.80
and $2.00 sometime before the expiration of the August contract.
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