Starting off the week with more of a whimper than a bang, natural gas futures traders pushed the April contract within a slim 10-cent range between $7.200 and $7.3000 before the contract closed out the regular trading session at $7.254, down 1.5 cents from Friday's close. May natural gas dropped 2.3 cents to finish at $7.383.
With the shoulder season right around the corner on April 1, many within the industry are not expecting a decisive move in futures to occur before the summer temperature and hurricane outlooks come into a little better focus.
"There really wasn't a whole lot of activity in the natural gas ring on Monday and I really don't expect there to be much in the near term either," said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. "We seem to have bounced off that bottom of the range near $6.820 to $6.900 and now we are stalled midway between the February contract's expiration at $6.917 and the March contract's settlement at $7.547. The average of those two numbers is $7.230. I guess we are saying one month was colder than normal and the other month was warmer than normal, so we are looking at the average of the two months. The April contract is right in the middle here; there isn't really anymore to it than that. Once we get April over with we will see what the summer has to bring us."
With April natural gas somewhat directionless right now, some traders hint that the petroleum and stock markets could offer price guidance. Addressing what if any relationship there is between crude and natural gas markets, Saal said he has always been weary of putting too much faith in a connection. "Are the Iranians going to invade and capture the Henry Hub?" Saal queried. "While I don't completely discount the relationship theory, I think the reason for higher prices is more fundamental than that. The economy is still in pretty good shape, but the dollar is weak. That has allowed all commodity prices to be pretty strong. I think the summer weather forecasts and Atlantic hurricane outlooks will provide the next real market-moving news for natural gas prices."
However, as the natural gas storage withdrawal season winds to a close and near-term weather factors become relatively unimportant, some traders are looking to the petroleum and equity markets to help determine the direction of natural gas futures.
"It's that time of the year when the gas market will take its cue from outside facts, such as the [petroleum] complex and major world stock markets," said Mike DeVooght of DEVO Capital, a Colorado trading and risk management firm. He noted that both of those factors were helpful to natural gas markets last week.
April natural gas futures rose 34.5 cents to $7.269 last week, yet May crude oil advanced $2.70 to settle at $62.28/bbl and the Dow Jones Industrial Average rose 370.60 points to finish at 12,481.01.
"We will continue to watch these markets as an indicator as to the future direction for the gas market, and are just content to hold our light positions and await future developments," DeVooght said. "On a trading basis we still have a negative bias but would not be very aggressive at this time."
If enthusiasm for petroleum markets becomes contagious, natural gas bulls can expect green pastures. On Friday, Phil Flynn of Alaron said that "at current demand levels oil supplies will tighten significantly." And not just supplies of oil but gasoline and distillates as well. "In fact, the near-term outlook for the entire energy complex is wildly bullish and the only thing we may have to fear is Friday profit-taking itself."
Flynn is currently long May crude oil at about $59.50/bbl with a stop loss order at $58.50/bbl. May crude gained 63 cents Monday to $62.91/bbl. Flynn is also long May natural gas from $7.300 with a stop at $6.700.
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