June natural gas futures assaulted the psychological $8 resistance level to no avail for a second consecutive session Friday as market bulls were looking to finally put the $7 to $8 range that futures have recently been stuck in firmly in the rear-view mirror. After recording an $8.100 high on the day, the prompt month retreated lower to record a $7.850 low before settling at $7.938, down almost a penny from Thursday's close and 10.7 cents higher than the previous week's finish.
"You're progressively attacking new perpetual highs here," said Commercial Brokerage's Tom Saal, who noted that the June high before it reached prompt-month status was $8.140 back on April 11. "We keep knocking on the $8 door and eventually we are going to get through it. That is not to say there won't be bouts of retracement, but the market definitely has a more friendly look to it."
As for who is doing the moving and shaking in the market, Saal pointed to the commercials as partially responsible. "You probably had some commercial buyers who were hoping for something with a $6 handle. I think they are finally giving up a little hope of seeing that and are now raising their expectations of where they can buy at," he said. "You have to remember the last three settlements for March, April and May have been right around the $7.50 area, so that may be where they think they ought to be buying. We are compressing the old $7 to $8 range, and on the chart we are seeing a 'rising bottom.' We now have $7.500 on the low side and $8-and-change on the upside, but maybe that $7.50 low mark is rising as we approach the AC [air conditioning] load and hurricane season.
"You also have to keep an eye on the funds. According to the previous week's Commitment of Traders report, they are still fairly net short. They are also potential buyers...and when they move, they normally go en masse. Despite the price movement, the overall market sentiment still appears to be a 50-50 split between bullish and bearish. While most people expect higher prices later this summer, some are not sure whether or not there is room for another dip before the higher prices come."
Short-term traders greeted Thursday's release of inventory figures with a big yawn. "When the inventory number came out it was right in line with expectations," said a New York floor trader. The Energy Information Administration's weekly report on natural gas inventories showed an addition of 87 Bcf for the week ended April 27. Once the number was out of the way, floor traders started to go to work. They sensed that when funds and managed accounts exited their May futures positions last week; they bought May contracts and sold June, extending existing short positions into the now prompt June contract.
"When the funds traded out of their May contracts they rolled shorts from May to June, and that tipped their hand as to where they stood. The locals gunned for those fund stops and got them [Thursday]," the floor trader observed. It looks like there may be more stops left to boost the market higher. "It doesn't look like the funds are looking to cover remaining shorts anytime soon. For the moment they are digging deeper to cover [Thursday's] losses. The near-term highs over $8 are in sight and there is more room to work higher on a technical basis," he said.
Others see the market running out of gas above $8. "While the magnitude of this 6.5% price rebound [Thursday] amidst limited guidance from the oil complex and in the face of a storage figure that appeared slightly bearish appears quite impressive, we still look for gains to be restricted above the $8.00 mark," said Jim Ritterbusch of Ritterbusch and Associates.
Some traders are right on track. "We're long June natural gas from approximately $7.70 with a stop at $7.50," said Phil Flynn of Alaron.
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