Continued strength from the tension-filled petroleum sector combined with warmer than normal temperatures in the southern regions of the U.S. worked to buoy natural gas futures Tuesday as May natural gas finally broke out of its recent $6.65-7.65 trading range. Following a high of $8.10 in afternoon trading, the prompt month went on to settle at $8.008, up 43.1 cents on the day, bringing the week's two-day total gain to 87.3 cents.
The $8.008 settle was the first outside the prompt-month's trading range since March 10, when the April contract closed at $6.646. The last time prompt-month futures settled above $8 was all of the way back on Feb. 3, when March futures closed at $8.613.
Crude traders continue to watch Iran's actions closely. The country said recently that it will continue to enrich uranium for its nuclear program, which it claims is aimed only at generating power for civilian use. Ali Larijani, Iran's top nuclear official, said over the weekend that demands to halt the program were "irrational," the BBC reported.
Crude's actions overnight laid the groundwork for Tuesday's session. In Monday night's overnight Access trading, May crude oil reached an all-time high, trading as high as $70.88/bbl, which eclipsed the previous high of $70.85/bbl set Aug. 30, 2005 in the aftermath of Hurricane Katrina. Prompt-month crude pushed even higher Tuesday with a high of $71.60/bbl before closing at $71.35/bbl, up 95 cents.
"We have a really strong crude market and technically, natural gas futures just really took off Tuesday," said a Washington, DC-based broker. "Early heat also played a part. Even though natural gas storage levels are more than comfortable, if it really does get hot...and stays hot...we'll be thrilled that we have that amount of gas underground because we will definitely need it."
After the market blew through a number of price targets, the broker said the next viable number on the charts to the upside is $8.65. "I have to fall back on the great saying...'the trend is your friend,'" she said. "I don't think the Iranian story is going to go away anytime soon. Nor do I think that the Nigerian issues will go away quietly either. If you look back at the charts historically, a spring rally in the energies is not uncommon. So, hello spring rally."
Top traders see a couple of important dynamics in place. The natural gas market "is receiving a free ride off of the hoopla surrounding the record crude highs," said Jim Ritterbusch of Ritterbusch and Associates. He noted that other than some warm weather in Texas "supportive fundamental news has been extremely limited."
On Monday, Texas was forced to implement rolling blackouts due to high temperatures that gripped the state at a time of year when generation often is out of service for maintenance.
Natural gas' "free ride" may not end anytime soon. "Iran is still the main driver," said Tobias Merath, an analyst for Credit Suisse in Zurich. "Many Europeans are back after the holidays, and they're jumping on the trend now." According to MarketWatch, the Swiss bank is forecasting crude at between $65 and $72 in three months, with a level of $75 a barrel seen as the top.
However, natural gas funds and managed accounts still hold a massive short position. The Commodity Futures Trading Commission reported Friday that noncommercials held a net (natural gas futures only) position of 33,214 contracts as of April 11.
"While the entry of investment fund money has been an important catalyst in driving petroleum values higher, we are maintaining an opinion that the fund or institutional community is also scrambling to extricate themselves from a sizable net short position in the natural gas," Ritterbusch said. "We continue to feel that (their) short position will be virtually erased within about four to six weeks."
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