After settling above the key $8 level on Thursday, June natural gas futures on Friday managed to put in an impressive $8.230 high, but ultimately crashed lower to close out the week at $7.944, down 13.1 cents on the day. However, the close was 4.5 cents higher than the previous Friday's close, confirming that the market is in fact inching higher.
To some in the market, the inability of the bulls on Friday to capitalize on and extend Thursday's run-up had the smell of petroleum to it. June natural gas settled at a five-month high on Thursday, the same day crude and gasoline futures were off to the races. On that day, June crude closed $2.31 higher at $64.86/bbl, while June gasoline jumped an alarming 9.96 cents to $2.4366/gallon. On Friday, the natural gas ring found no such support as crude unimpressively added eight pennies to $64.94/bbl while gasoline gave back 2.89 cents to $2.4077/gallon.
"I kind of view this natural gas market as a dangerous wounded animal. You really don't want to approach it right now," said Tim Evans, an analyst with Citigroup in New York. "This thing still looks choppy as all get-out. Part of the problem is natural gas futures just don't want to trend here. There is a slight upward bias to prices and we continue to set new higher lows, so we will continue to probe the upside. So while there is some directional movement here, we really don't have the fundamentals in the near term to support higher prices. While our current storage level is below last year's level, we still have above-average storage, as well as above-average injections."
Evans noted that while bullish summer temperature and hurricane forecasts loom in the future, "we're not there yet. We get a little more anxious about those forecasts the closer we get to summer, but you also have to remember that they are not brand new. The Colorado State University forecast from December was still calling for an active storm season. The same is true with these summer temperature outlooks. I remember looking at similar summer predictions in the middle of winter."
Touching on the supportive petroleum situation, Evans said it certainly could have impacted natural gas sentiment. "I think some of the emotion from the petroleum run spilled over from market to market. That still happens even though an awful lot of trading is occurring electronically now," he said. "It's not quite the same when one commodity pit at Nymex would get traders in another pit excited with the commotion that was going on. While there is not that same transference from pit to pit, I think there is still a sympathy and awareness that other fuel costs are going up, suggesting that maybe natural gas ought to cost more too."
Some top traders suggest that the ability of June natural gas to advance Thursday was fueled by a surging petroleum complex. "The strength in the oil complex, especially the multi-month highs in heating oil, will be providing a bullish setting for the gas market during the coming sessions unless oil price strength subsides appreciably or gas prices disconnect from oil in decisive fashion," said Jim Ritterbusch of Ritterbusch and Associates.
He noted that his bullish longer-term view, which is based largely on the premise that stronger oil values during the summer months will provide an important upward pull on gas prices, remains valid. However, for the remainder of the month "we still see little urgency in getting on board the long side of the market," he said in a note to clients.
Other traders are taking a wait-and-see approach as well. "Spot futures finally settled over $8, but we are looking at a big band of technical resistance between $8.11 to $8.14," said a New York floor trader. "If the market can break through that, then the next resistance is up at $8.35."
The Energy Information Administration's report Thursday showed a 95 Bcf injection into underground storage for the week ended May 11, which was 2 Bcf under the results of the last-ever ICAP storage options auction. With waning participation in the Wednesday auction, ICAP confirmed during the week that it was shutting it down along with the company's daily settlement auction. "Daily settlement and storage auctions will no longer be offered after Friday, May 18," ICAP said. "Historical data will be accessible...until Thursday, May 31."
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