April natural gas futures suffered a double-digit loss Tuesday as bearish views on the market -- which ranged from robust selling by short-term traders to abundant production -- trumped those seeing a tighter storage dynamic firming prices. At the close April futures had retreated 16.4 cents to $3.873 and May natural gas had fallen 16.0 cents to $3.950. April crude oil surged $2.66 to $99.63/bbl as concern surfaced that Libyan unrest would spread to Saudi Arabia and Iran.
"I think the market is headed to $3.70, and it looks like that is the next step lower," said a New York floor trader.
He added that spread traders were also active with the April-May spread [buying the May contract and selling April]. "We saw 19,000 April-May spreads trade, but other spreads were light," the floor trader said.
The day's decline was not due to a lack of bids but more the result of concerted selling. "I think someone is putting pressure on the market. At first there was a lack of bids, but beyond that it was an orderly retreat. I look for the next support zone at $3.70 to $3.75," he said.
Longer-term analysts had a somewhat different take on the day's decline.
"The natural gas market is in retreat in early trading...in what looks like an attempt to reject recent weather forecasts for cooler-than-normal temperatures as a support for prices," said Tim Evans, an analyst with Citi Futures Perspective of New York. "This is more about the tussle between bulls and bears for control of the price than it is about current fundamentals, with the storage data showing a market that is clearly tighter than it was back in October when prices were also below $4.00. Storage that was 353 Bcf above the five-year average as of Oct. 29 was 61 Bcf below the five-year average as of Feb. 18 and should finish the withdrawal season on the order of 100 Bcf below the five-year average the way it looks now. We continue to see this tightening of storage levels as supporting a price recovery to $4.25 to $4.50 in the weeks ahead."
Other analysts see a weak pricing environment going into the shoulder season.
"We have suggested taking profits out of any long positions in April futures in the $4.05-4.10 zone, and we will view a potential short-covering rally during the next couple of days as an opportunity to establish short positions within the spring futures, preferably on an advance back to [Monday's] highs," said Jim Ritterbusch of Ritterbusch and Associates.
He sees little chance of a concerted advance higher from $4. "Pushing this market off the $4 area with the approach of the shoulder season could prove difficult, even if some cool temps are extended toward mid-month. The market is still looking for relief on the production side and is seeing little evidence in this regard. As long as output remains high with another year-over-year increase widely expected, a fresh round of lows will likely remain on the table," he said in a morning note to clients.
Weather models overnight turned a little cooler in the 11- to 15-day period. MDA EarthSat shows below-normal temperatures north of a sinuous line extending across the country from western New York to central Missouri to southern Wyoming to central California. Above-normal temperatures are limited to New Mexico, South Texas, the Gulf Coast and Florida.
"The forecast is cooler overall across the eastern half of the U.S. but is somewhat warmer across the Pacific Northwest and northern Rockies. The cold late in the six-10 day period will spread further east in the 11-15 day period as the PNA [Pacific North America oscillation] trends back towards neutral," the forecaster said in a morning report. "A few days of belows will be possible across the Northeast and northern Mid-Atlantic. Belows are expected to be fairly widespread across the Midwest, but the strongest cold will remain across the western Midwest and northern Plains. However, this cold will become less intense late. Across the South, aboves will be less widespread."
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