Trading within a 13-cent band on Wednesday, natural gas futures traders basically confirmed that the walls are basically closing in with regard to the ever-tightening trading range of the past few months. June natural gas on Wednesday ended up closing on the day's high of $7.890, up 2.6 cents from Tuesday.
What was very recently seen as a $1 range between $7 and $8 has recently been pared to a 30-cent range between $7.700 and $8. "I have support at $7.755 and we got as low as $7.760 on Wednesday," said enerjay LLC broker Jay Levine, who confirmed that the trading range has continued to contract over the last few weeks. "I think the likelihood of eventually trading above $8 is pretty high, since I am ultimately bullish the entire complex, but I don't know when it will occur. We certainly have been threatening to do it and it is something that definitely bears watching. We've been trading $7 to $8 for so long, so when can we start trading from $8 to $9? I think it is eventually going to happen, but I still have my doubts in the short term."
That said, Levine noted that the unpredictability on timing remains the key factor. "Like anything else, this market is prone to head-fakes and false breakouts. So far that is what we have had. We could turn around in the next minute and be trading at $8.010 in a second with the next stop at $8.550," he added. "You definitely have to keep an open mind to that. However, we are 'probably' going to need some sort of catalyst to help the breakout, the key word being probably. That catalyst could be a trend of less injections going into underground storage, or some fluke storms hitting the Gulf of Mexico. At the same time, it is well known in this market that sometimes no catalyst is needed. All you need is sentiment to run that way and we'll end up running right through that $8 resistance."
Prior to Wednesday's trade, market technicians believed that the weak settlement Tuesday was setting the stage for a move lower. The failure of June futures to settle above $8 Monday set up an important "candlestick top" indicating lower prices, but technicians like to see market confirmation of their analysis. Tuesday's weak finish with June futures settling down 8.8 cents to $7.864 may have been just what the bears were looking for.
"Monday's candlestick would be a victory for the bears only if they could get the confirmation of a decisive down day on Tuesday. The bears got their confirmation," said Walter Zimmerman of United Energy.
He added that if natural gas futures are putting in a seasonal peak, then "natgas should not be able to get back above the $8.000-8.050 zone as the 0.618 and 0.7862 retracements of the $8.112 to $7.815 decline. Peg the next two hurdles for the bears at $7.785 and then $7.580," Zimmerman said.
Short-term traders see the $7.580 objective in sight. "I've got a feeling the market is going to go back right back to where it started, $7.550," said a New York floor trader. He added that "with the [storage] number we are getting on Thursday it looks like prices will drop. I've heard a build of 100 Bcf." A survey by Bloomberg of 13 analysts revealed a median 95 Bcf injection estimate.
Looking closer at the Energy Information Administration's (EIA) Thursday storage report for the week ended May 11, most industry estimates appear to be calling for an injection that falls closely on either side of 100 Bcf.
Golden, CO-based Bentek Energy said its Flow model indicates an injection of 96 Bcf, bringing stocks 10.8% below the five-year high (last year) and 20.7% above the five-year average. The Flow model includes an expectation that the East region will inject 63 Bcf, while the Producing and West regions chip in 22 Bcf and 11 Bcf, respectively.
"Storage fill nationwide increased from 45.3% to 48.2% this week," Bentek said in its Natural Gas Storage Outlook. "The largest increase was at Eminence-Transco, up 9.5% from 75.3% to 84.7%. The largest decrease was at Young-CIG, down 5.8% from 31.2% to 25.3%."
According to the report, the U.S. storage utilization rate increased to 48.2% during the week, up 3.1% from the previous week's 45.3%. According to Bentek, storage utilization during this time last year was at 57.6%.
An injection number close to 100 Bcf for the week ended May 11 would be slightly bearish when compared to last year's 90 Bcf build and the five-year average injection of 77 Bcf.
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