March natural gas futures managed a modest gain Monday as traders cited market moves reflecting largely bookkeeping and rolling of positions from one month to the next. There was little in the way of new fundamental information, and traders suggested that short-term support areas were safe for the moment. At the close March natural gas was up 1.5 cents to $3.925 and April added 1.4 cents to $3.991. March crude oil continued its losing ways, posting a decline of 77 cents to $84.81/bbl.
"The funds are basically short March and they are rolling those positions into short April, and that is likely to continue for the rest of the week. UNG (U.S. Natural Gas Fund) began rolling long positions last week and will finish Tuesday, so basically you had the fund shorts exchanging with the UNG longs," said Eric Bentley, CEO of Viking Energy LLC in New York.
He added that $3.82 is a big [support] area, but "we have come so far so quickly that I don't think $3.82 is going to be breached since funds are just content to maintain the short positions they have. The funds are content to use the liquidity present with the UNG roll to move their positions for now. If the funds are going to make an assault on prices to push them still lower, they are likely to use the April and May contracts. May looks pretty tempting at $4.06. There are funds that think we may see $3.65, but they may just be talking their book."
For the five trading days ended Feb. 8 funds weren't talking their book, they were aggressively bailing out of long positions and entering into new short positions, according to government data. The Commodity Futures Trading Commission in its weekly Commitments of Traders Report showed that at the IntercontinentalExchange managed money liquidated 69,906 long futures and options (2,500 MMBtu), reducing holdings to 374,425, and short positions rose by 5,722 to 29,917. At the New York Mercantile Exchange long positions (10,000 MMBtu) decreased by 3,731 to 147,618 and shorts jumped a robust 20,122 to 259,699. When adjusted for contract size long contracts at both exchanges fell by 21,207 and shorts rose by 21,552. For the five trading days ended Feb. 8 March futures fell 30.7 cents to $4.040.
Top traders until recently had been thinking the market was building a base from which prices may advance, but last week's price decline has them reassessing that concept. "The gas market continues to be pressured by more-than-adequate supplies and lackluster demand. Even a bullish storage withdrawal [reported last week] failed to give the gas market any support," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.
"It has been our thought that the gas market was going to continue to trade in the high $3 to high $4 range in the weeks to come. It has been our thought that the gas market has been building a base and was mending. But [last] week's activity (down sharply when most commodities were strong) has us a little concerned and wishing we would have been a more aggressive seller when we were in the high $4s a couple of weeks ago.
"We are not throwing in the towel on our thought that the gas market is establishing a base, but we will pull back on making any bullish bets if the $3.75-3.80 level is broken on the spot contract. In the meantime, we are on the bottom side of the range, so for speculators and end-users we will probe the long side. We will utilize short puts and long contracts," he said in a weekend note to clients.
DeVooght currently advises trading accounts to roll short February $4.20 put options to short April $4.05 puts. End-users should stand aside, and producers and physical market longs are counseled to hold an April-October strip consisting of long $4.50 puts and short $5.50 calls at even money for 10% of their position.
Weather models Monday morning showed six- to 10-day below-normal temperatures in New England, the Great Plains and Mountain West; and above-normal temperatures in the Southeast.
"The big warming this week is still on schedule with impressive anomalies expected in the Midwest, East and South. Meanwhile, a cold and unsettled week is forecast for the western third of the U.S. with frequent much-below-normal anomalies in California," said Matt Rogers, president of Commodity Weather Group, a Bethesda, MD-based weather forecasting firm. "A big challenge in the six- to 15-day will be determining the boundaries where the northern cold air supply runs up against warm influences from a Southeast/Southern ridge. The models over the weekend fluctuated frequently on this boundary, and this results in a lower-confidence forecast. Either way, this pattern is nowhere near as cold as the last two weeks of actual weather."
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