Natural gas bulls kept the pressure on futures prices on Friday as the July contract once again reached $8 before backing off in a late round of profit taking to settle at $7.918, up 11 cents from Thursday's close and 25.5 cents higher than the previous week's $7.663 finish.
While the market's gains were of interest, a lot of the trader talk Friday surrounded the rumors that the New York Mercantile Exchange was courting suitors interested in acquiring the 135-year-old commodity exchange (see related story). Reports had Nymex attempting to sell itself to NYSE Euronext, Deutsche Boerse or the Chicago Mercantile Exchange (CME) for more than $14 billion.
"This has been a long time coming," said a New York broker. "The rumor is that the New York Stock Exchange is going to bid over $14 billion for Nymex. It really is not a surprise; we've heard for a while that NYSE has been interested in expanding into the commodity arena. From my perspective, I thought CME would be the major suitor once it finished buying the Chicago Board of Trade. Nymex is already in bed with CME on Globex, so CME would make sense."
Turning attention to Friday's trade, some market participants said the price risk is still firmly to the upside. "We really are still bouncing back and forth here. By touching $8 again Friday, we basically hit the last minor resistance level before we head up to the first major resistance line up at $8.210," said Steve Blair, a broker with Rafferty Technical Research. "The late round of selling Friday shouldn't be seen as weakness in my opinion. It was simply profit taking ahead of the weekend."
Blair noted that even though fundamentals are bearish, the risk is to the upside. "There are many factions in this market that are looking at the fact that we are in hurricane season and hot weather is coming. A lot of speculative traders look at these facts and see prices with a limited downside, [and] with a much more unlimited upside. Nobody wants to be caught short and walk in the next day to a sustainable hot weather forecast in the Northeast because then they will be caught in a vacuum."
Blair added that natural gas is currently being led higher by strength in the petroleum futures sector, especially gasoline. On Friday, July crude gained 35 cents to close at $68/bbl, while July gasoline jumped 3.54 cents to finish at $2.2601/gallon.
Thursday's storage report could be read either way, but bulls pointed to anticipated warm weather and a near-active tropical environment. At first blush, Thursday's healthy gains appeared to be the result of a slightly bullish injection figure showing a 92 Bcf build, which was somewhat below expectations. Yet it was hard to find a bear anywhere in the petroleum trading rings in New York Thursday as July crude oil rose $1.39/bbl to $67.65/bbl, and healthy gains were recorded in heating oil and gasoline as well.
Traders close to the action Thursday felt that the strength in natural gas was somewhat deceptive. "The [natural gas] market kept going with the crude oil, and it encountered some resistance, but went out strong," said a New York floor trader. Even with the bullish storage number, he said, natural gas would not have risen had it not been for the strength in crude oil. "It would have come off at the $7.800 level without the strong crude oil," he said. July natural gas settled Thursday at $7.808, up 20 cents.
The double-bull twins of hot weather and tropical activity, though not yet fully in play, are certainly on traders' minds. Forecaster MDA EarthSat in its Friday morning forecast for the six- to 10-day period said its weather models for the East "are still vigorously debating [this] week's heat event with the European versions maintaining hotter weather much deeper into the week vs. the cooler American models."
The National Weather Service (NWS) reported no tropical storms at present, but there are four tropical waves -- which can be the predecessor to a tropical depression -- active in the Atlantic, Caribbean and South America. In its Friday morning report, the NWS showed a wave in the Atlantic Ocean at 12N, 20W, a second in the eastern Caribbean at 16N, 64W, a third near Colombia at 11N, 73W and one near Central America at 16N, 94W.
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