Futures Advance 40 Cents as Technicals and Fundamentals in Bullish Agreement

Adding to strength experienced in the overnight access trading session, natural gas futures galloped higher Monday as short-covering made a indelible imprint on a market otherwise devoid of much trading liquidity. After gapping higher at the opening bell, the prompt June contract received a boost by supportive technical features as well as reports of nuclear unit problems. It closed at $5.689, up 43.4 cents for the session.

Traders were quick to point to reactionary buying following reports of vessel head problems at nuclear units in South Carolina and Florida Monday. The degradation was recently discovered at Duke's 846 MW Oconee 3 unit in Seneca, SC, and FP&L's 839 MW St. Lucie 2 nuclear unit located on Hutchinson Island about eight miles southeast of Ft. Pierce, FL, according to an event notification report issued by the NRC. Both units are currently offline for refueling and maintenance-related work (see related story in Power Market Today).

Since FirstEnergy Nuclear Operating Co. (FENOC) last year was forced to shut down the 935 MW Davis-Besse facility in Ohio after the discovery of major corrosion on the plant's reactor head caused by boric acid (see Power Market Today, March 14, 2002), concerns over nuclear plants have been high. Traders agreed that this played a part in the gas futures rally Monday.

Physical gas prices moved higher as well, but not to the degree experienced by the futures market. Several traders noted the reason for the disparity was the existence of short-covering in the futures market, which was set in motion by some key buying technical signals Friday. "The intraday stochastic oscillator turned up from oversold levels and the fast oscillator has crossed above the slow," wrote Craig Coberly of GSC Energy in Atlanta in a note to customers Friday."This feature supports ideas the trend has turned up." Looking ahead, Coberly looks for a move to $6.14

But even if he is right and prices continue higher, they are unlikely to do so in a straight line. Rather, some market watchers feel Monday's rally was overblown and look for profit-taking to enter the market Tuesday. If so, bears will have their sights on the $5.387 level, which corresponds with June's 40-day moving average. A break lower would put the market on the defensive and would likely result in an attempt to fill in the $5.310-335 chart gap created by Monday's higher open.

In a first stab at this week's storage report, Kyle Cooper of Citigroup calls for a 86-96 Bcf injection, which would dwarf last year's refill of 39 Bcf and the five-year average build is 62 Bcf.

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