The upward enthusiasm of Tuesday quickly dissipated Wednesday as traders reverted to tried and true seasonal spread trading. April futures fell 10.6 cents to $7.366 and May eased 9.7 cents to $7.491 as funds and managed accounts bought May contracts and at the same time sold April and also bought January and sold October.
"The main activity was the April/May and October/January spreads. The April/May started the day at 10.5 cents and ended at 12.5 cents" said a New York floor trader.
Natural gas traders were fully capable of ignoring the enthusiasm in the adjacent crude oil ring. April crude oil jumped $1.13 to $61.82/bbl on a supportive inventory report.
"We have been in a trading range for three months and haven't gotten out of it," the trader said. "It looks like that is not going to change anytime soon."
Longer-term traders suggest the likelihood of prices above $8 is limited. "Our model is short, and the probability of the market advancing past the early February highs is gone," said a Washington, DC broker. He added that they were in a moderately bearish but not rigidly bearish posture, and "the big number to watch on the downside is $7.05. Some traders have suggested $7.13, but that is support on the April chart, whereas $7.05 is derived from the continuation chart," he said.
One number traders will be looking at Thursday is the 10:30 a.m. (EST) release of government inventory figures. Broker Fimat expects a withdrawal of 99 Bcf and the ICAP derivatives auction revealed a consensus draw of 97 Bcf. Last year 97 Bcf was taken out of storage, and the five-year average is 115 Bcf.
The intensity of the recent eastern cold was not expected by traders. "This market's 20-30 cent advance this week has been a bit surprising given the late stage of the usage cycle and the expected temperature moderation beyond this week," said Jim Ritterbusch of Ritterbusch and Associates. He noted that this week's cold patterns across much of the country have proven more intense than previously expected. Spot gas prices advanced to $7.57 at the Henry Hub Tuesday, surging past even Tuesday's stout April futures settlement of $7.472, suggesting a "larger than normal storage withdrawal in next week's EIA report," Ritterbusch said. On Wednesday the Henry Hub averaged near $7.52.
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